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Shanghai Gold Exchange Hikes Silver Margin By 20%

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Mon, 09/26/2011 - 03:54 | 1709918 gorillaonyourback
gorillaonyourback's picture

not gonna help the cartel,,,, its game over for the fiat.  they can't print mo money and they can't afford not to print mo money.

Mon, 09/26/2011 - 04:08 | 1709986 ManufacturedOpinion
ManufacturedOpinion's picture

Damn - now THERE'S a scary thought:  Closing the gold/silver market.

How am I gonna buy more ???

Mon, 09/26/2011 - 04:28 | 1710066 eisley79
eisley79's picture

Thank you for posting absolute margins Tyler, we always want absolute as well as % change.

 

Keep up the good work

Mon, 09/26/2011 - 05:15 | 1710218 Sudden Debt
Sudden Debt's picture

If they close it and prices for the real stuff go to 500$ per ounce I'm selling :)

 

Mon, 09/26/2011 - 05:54 | 1710260 Banjo
Banjo's picture

As long as I can get FIAT I'm holding my silver. In Yugoslavia, Hungary, Germany and Zimbabwe among others once the FIAT printing got HOT it wasn't worth converting over :)

 

I would suggest hang on to the silver till you are ready to buy someting in the physical world.

Mon, 09/26/2011 - 06:12 | 1710274 unky
unky's picture

When he says $500/oz he means he will sell silver for things which cost $500 today. So he means he would use 32 oz of silver to buy a car for example. The $500 is just a figure to compare. Its quite hard to say 1oz for a computer, 1/100oz for a loaf of bread. Nobody would speak like that.

Mon, 09/26/2011 - 07:59 | 1710376 strannick
strannick's picture

LIke Feteke said, the price of gold/silver is on it's way to zero, as in, they will be unpurchasable with govt paper.

Mon, 09/26/2011 - 08:04 | 1710411 Sathington Willougby
Sathington Willougby's picture

"1oz gold will always buy a nice men's suit."

I contend that

"1oz silver will always buy a cheap suit."  What you do w/ it is up to you.  I suggest securing your medicine based business plan or maybe one based on foreign militarism with your new found cheap suit.  Dress him up like a cheerleader and pose him in a large state governor's office if you dare.  Hell, prop him up for the big office on the hill, you can destroy millions of lives there.

Mon, 09/26/2011 - 05:33 | 1710236 zhandax
zhandax's picture

That's the point...they can't close the gold/silver markets; they can only intimidate the futures traders.

Mon, 09/26/2011 - 03:54 | 1709920 Ahmeexnal
Ahmeexnal's picture

completely predictable.

Mon, 09/26/2011 - 03:55 | 1709921 ffart
ffart's picture

Isn't it funny how the more these exchanges act to drive speculators out of the markets in the name of "price stability" the more volatile the markets get.

Mon, 09/26/2011 - 03:58 | 1709941 macholatte
macholatte's picture

5 minutes after Europe opened everything reversed. What a surprise. What's gonna happen when NY opens?

Mon, 09/26/2011 - 03:59 | 1709945 Tyler Durden
Tyler Durden's picture

Talk of emergency 50 bps ECB rate cut. ECB denied it meaning it is probably imminent.

Mon, 09/26/2011 - 04:03 | 1709955 Smithovsky
Smithovsky's picture

more at 11

Mon, 09/26/2011 - 05:38 | 1710246 buzzsaw99
buzzsaw99's picture

you are obviously mistaken. china is the only country which can move commodities. [/sarc for emerging mkt copper-tards]

Mon, 09/26/2011 - 04:00 | 1709948 Edward Fiatski
Edward Fiatski's picture

"When China does business, why your pussy hurt?"

Mon, 09/26/2011 - 06:11 | 1710273 buzzsaw99
buzzsaw99's picture

you likey sweatshop, me likey sweatshop. why you so sore?

Mon, 09/26/2011 - 11:33 | 1711338 Ahmeexnal
Ahmeexnal's picture

roundeye want flied lice withs a stlaw?

Mon, 09/26/2011 - 04:00 | 1709949 LookingWithAmazement
LookingWithAmazement's picture

The Shanghai Gold Exchange is as corrupt as the Crimex and drives up prices. Now finally a shake-out.

Mon, 09/26/2011 - 14:25 | 1712179 thefedisscam
thefedisscam's picture

Shanghai Gold Exchange is NOT AT ALL more corrupted than the U.S. one!! as a matter of fact, they are LESS likely corrupted, because China still has NO power to mantipulate the global gold/silver market!!  whatever they do, is to follow what the CORRUPTED U.S. and EU have done! Period!

Mon, 09/26/2011 - 04:02 | 1709952 RagnarDanneskjold
RagnarDanneskjold's picture

Liu Jun Luo (???) predicted the crash in gold, he was just early by 10 months. Chinese buying has been bubblicious. Fitting that today was the day they launched the gold ATM at Wangfujing in Beijing! 

Mon, 09/26/2011 - 05:36 | 1710242 Going Loco
Going Loco's picture

10 months out in timing = WRONG

Mon, 09/26/2011 - 04:05 | 1709953 OldPhart
OldPhart's picture

I'll bet that translation sounded like beautiful bullshit in chinese, too.

City in the event of three consecutive cases of unilateral, which measures the specific use, the exchange will be based on market conditions, in the Sept 28 12 -point first through the exchange website, please access the Member in a timely manner, and to prepare preparations.

 While I get the general gist of the article I can sympathize with the ESL crowd. 

"Accessing" my "Member in a timely manner" and "prepared preparations"....hmm, chinese porno?

Mon, 09/26/2011 - 04:11 | 1710002 eigenvalue
eigenvalue's picture

I can give you a better translation. 

In the case of three consecutive days of limt down, the Exchange will decide which measure to take according to market conditions. The specific measure will be released at 12 PM Sept 28 (Beijing time). All exchange members are required to get informed on a timely basis and make preparations accordingly.

Mon, 09/26/2011 - 04:58 | 1710196 OldPhart
OldPhart's picture

Thanks, BUT

while your translation is much clearer, the original seemed so much more, um, 'whimsical'.

Mon, 09/26/2011 - 06:01 | 1710263 eigenvalue
eigenvalue's picture

 

I think this will be a better translation than the Google Rubbish :) I guess Tyler may use it to replace the lousy google version

All Exchange Members:

The silver AG(T+D) contract closed limit down on Sept 23 (AG (T+D) contract is similar to LBMA deferred accounts but it is an exchange traded product instead an OTC one). According Shanghai Gold Exchange Risk Control Rules, if AG(T+D) closes limit down again (two consecutive days of closing limit down), the margin level of AG (T+D) contract will be adjusted from 15% to 18% at the end of day and the price limit will be raised from 12% to 15% on the next trading day.

 

All Exchange Members

Silver AG(T+D) contract closed limit down on Sept 23. If the silver contract closes limit on Sept 26 and 27, i.e three consecutive days of being limit down, that will mean the third consecutive day of single directional market movement. According to relevant regulations in Shanghai Gold Exchange Risk Control Rules Chapter II, in the case of the third consecutive day of single directional market movement, on the trading day Sept 28 (21:00 Sept 27-15:30 Sept 28 Beijing time), the Exchange will suspend the trading of silver AG(T+D) contract for one trading day and adopt either of the following measures to deal with risks.

Measure 1: On Sept 28, the Exchange may raise the margin levels of some/all exchange member. The margin level may be raised on one party or both parties of the trading. The margin levels may be raised by the same percentage or different percentage for the two parties of the trading. The Exchange may restrain some/all exchange members from opening new positions. The exchange may adjust price limits. The exchange may restrain some/all exchange members from withdrawing money. The exchange may force exchange members to close positions before a certain deadline or close members’ positions on its own. The exchange may also stop the trading of silver AG (T+D) contract. The specific measure to be adopted will be released by 12PM Sept 28 Beijing time on the Exchange’s website and implemented in the end of day clearing process of Sept 28

 

Measure 2: On Sept 28, the Exchange will apple contractual position closing for all silver AG(T+D) parties, The process works this way:  when the market closes on Sept 27, the exchange will match all the unfilled orders to close long positions at the lower price limit with short positions based on the profit size of all the short positions. The settlement price will be the settlement price of Sept 26. The unfilled orders to close long position at prices other than the lower price limit will not be included in the contractual position closing process. The exchange suggest all the long position holders who are willing to close place their orders at the lower price limit before the closing on Sept 27. Once the exchange adopts measure 2, the orders will be used in the position closing process. If a position holder holds positions on both the long and the sides, all of his short position will be closed before the contractual position closing process.

In the case of three consecutive days of single directional market movement, the Exchange will decide which measure to take according to market conditions. The specific measure will be released at 12 PM Sept 28 (Beijing time). All exchange members are required to get informed on a timely basis and make preparations accordingly.

If on Sept 27, the silver AG(T+D) contract does not experience three consecutive days of single directional market movement when the market closes. On Sept 28, the trading will resume as usual, the margin level will be 18% and price limit will be 15%.

Special Note: Because of the volatility of the silver market and uncertainty of the specific measure that will be adopted by the exchange, for investors’ own good, the exchange suggest investors should carefully study the risk management measures that may be adopted and NEVER ACT ON AN IMPULSE.

 

Mon, 09/26/2011 - 04:03 | 1709954 eigenvalue
eigenvalue's picture

This is completely predictable. If you read Shanghai Gold Exchange Rick Control Rule, you will find that SGE just played according to the Rules. When gold/silver closes limit up/down, the margin and price limit will definitely be raised the next day. Shanghai Futures Exchange, Dalian Commodity Exchange and Zhenzhou Commodity Exchange have similar rules. 

Mon, 09/26/2011 - 05:10 | 1710212 honestann
honestann's picture

Please EXPLAIN to me and everyone why margin is INCREASED when prices FALL dramatically.  Please tell us how that makes ANY sense what-so-freaking-ever.

To increase margin when prices rise is rational, because it keeps the margin PERCENTAGE more-or-less constant.  The decrease margin when prices fall is rational, because it keeps the margin PERCENTAGE more-or-less constant.

So do please explain the logic of your claim.

Mon, 09/26/2011 - 05:42 | 1710251 buzzsaw99
buzzsaw99's picture

Please EXPLAIN to me and everyone why margin is INCREASED when prices FALL dramatically. Please tell us how that makes ANY sense what-so-freaking-ever...

 

Please tell me you're kidding.

Mon, 09/26/2011 - 07:48 | 1710360 Thomas
Thomas's picture

Why does a dog lick his balls?

Mon, 09/26/2011 - 09:23 | 1710702 Smiddywesson
Smiddywesson's picture

Because he can?

Mon, 09/26/2011 - 11:17 | 1711281 buzzsaw99
buzzsaw99's picture

:dog licks balls:

 

Thomas: I wish I could do that.

 

buzzsaw99: Go over there and be nice to him, maybe he'll let you.

Mon, 09/26/2011 - 21:46 | 1713598 honestann
honestann's picture

No, I am not kidding.  Are you?

The point of changing margin AT ALL on leveraged instruments is to prevent the leverage from getting excessive.  Got that?

Let's say you put up $1000 to control $10,000 for example, the $1000 being margin (to keep this simple, we'll say this is initial and maintanence).  This is 10:1 leverage.

If the price of the asset falls to the point where on contract only controls $9,000 then they should require $900 deposit so people STILL have 10:1 leverage.  There is no reason when the asset price drops to require $1,200 to control $9,000 when just before you only needed $1,000 to control $10,000.  That is fundamentally arbitrary and counterproductive.  As I showed, the required deposit should have dropped from $1000 to $900 to stay at 10:1 leverage.

Note:  Nobody is saying that people don't need to add money to their account to cover drops in the value of the assets they control on margin.  Of course they do!  We are saying there is zero justification to require $1200 to control $9,000 when last week $1000 was sufficient to control $10,000.  That is blatant manipulation designed to FORCE the price down further.

Mon, 09/26/2011 - 22:17 | 1713654 chindit13
chindit13's picture

Wow. The explanation should be patently obvious (as I suspect the other poster meant to imply), but apparently it is not.

The word you are looking for is:  volatility.

Exchanges and their members are on the hook for positions that go bad if the position holder doesn't pony up.  Margin levels are the means they use to protect themselves.  They have formulas---unpublished---on which they rely and that are based on a combination of price and volatility.  If the formula was based on price alone, you might have a point.  What you have failed to consider is that when a market begins to experience sharp moves, it is possible that a single day's move alone might wipe out the entire margin.  Margins tend to be around 3-5%.  Any market experiencing a 5% move in a day or over a few days, wipes out the margin of anyone who has been on the wrong side of the trade.  In order to protect themselves, the exchanges understandably raise margin levels. 

The exchanges also know the net position of the market, because every new position has to be declared as a commercial hedge or an outright speculation.  If the exchange knows the spec position to be heavily skewed one way or the other, then they know that a move contra to the net spec position is going to cause a lot of pain and a potential capitulation.  Thus in a market that is moving against the net spec position, the exchanges might be prudent if they consider a margin increase.

The reason that they tend not to publish the formulas is because the pit could run the market one way or the other in order to set off the margin hike and squeeze those on the wrong side.

 

 

Mon, 09/26/2011 - 22:30 | 1713674 honestann
honestann's picture

No, the reason they don't publish the formulas is because the formula does not exist as a formula.  The "formula" is simply a name given to the arbitrary manipulations ordered by JPM and executed by JPM agents at the exchanges.  This is so obvious to anyone who looks, it is laughable to claim otherwise.

They just saved JPM about $20 billion dollars.  Maybe more.

Mon, 09/26/2011 - 23:35 | 1713762 chindit13
chindit13's picture

I was not aware JPM controlled every single commodity, and every single exchange in the world.  Forgive me for being naive, but I thought 1.35 billion Chinese might be willing to stand up to Jamie Dimon, maybe even laugh at him the same way that laughed at Timmy Geithner.  Apparently I do not have access to the information you have, which would make what you say "obvious".  I also can't figure out why Jamie Dimon---who I suspect is kind of a greedy control freak with little or no conscience (only an opinion)---would keep Blythe Masters on the payroll if she indeed was up against it to the extent Max Keiser claims.  Certainly he could have replaced her with Jerome Kerviel and been better off, if the Keiser theory is correct.

Back to your original post, the dependence you cite on price and leverage alone is simply wrong.  Vol and net spec profile are considered as well, in everything from silver to frozen orange juice.

Mon, 09/26/2011 - 05:53 | 1710258 eigenvalue
eigenvalue's picture

In China, unlike in the US, margins are set as a percentage of the notional amount of the contract. For example, if the silver price is $30 per ounce, contract size is 5000 ounces and margin level is 18%, then margin you must place in your account will be $30x5000x0.18=$27000. If the price goes to $40, then the margin you must place in your account will be $40x5000x0.18=$36000.

But when market closes limt up/down, the margin level (as a percentage) will be raised AND/OR the price limit will be expanded at the end of the day. 

On Sept 23, the silver contract in China closed limit down, at the end of day, the silver margin (as a percentage of the notional) was not raised but the price limit was expanded for 10% to 12%.

Today, the silver contract closed limit down again. This time the margin level is raised for 15% to 18% and the price limit is expanded to 15%

Mon, 09/26/2011 - 21:33 | 1713583 honestann
honestann's picture

You did not explain why margin should be increased when the price FALLS, whether the fall is "limit down", or just "down".  You did not explain what I asked you to explain.

Mon, 09/26/2011 - 04:05 | 1709972 user2011
user2011's picture

Gainesville coins site was down for "maintainence" until 9:00am EST monday.   What a convinent arrangement when Silver was down to 26.xx.     I wonder if someone in Gainesville knew about the dip ahead of the time.   They just don't want to sell their inventory at the discount. 

Mon, 09/26/2011 - 04:07 | 1709978 OldPhart
OldPhart's picture

Silver may still go down more when NY opens.  Gotta keep real money disagreeable to the masses.

Mon, 09/26/2011 - 04:15 | 1710020 eigenvalue
eigenvalue's picture

Tomorrow will be the option expiry day. $20 silver tomorrow? Hopefully not.

Mon, 09/26/2011 - 05:08 | 1710208 Snidley Whipsnae
Snidley Whipsnae's picture

"Gotta keep real money disagreeable to the masses"

How does this effect real money? It appears to me that China is helping it's citizens purchase real physical bullion while at the same time discouraging citizen speculation in PAPER PMs.

It wouldn't hurt my feelings if all the crooked speculative metals exchanges jacked their margins to 100% and demanded physical delivery for anyone taking a position as a 'market maker'...

As long as paper PMs are allowed to set the price for physical PMs we will have no idea what the real price of physical is... and central banks thru bullion banks can continue to sell forward 'leased paper gold' to control the price of physical.

With a little luck the paper players will be whipsawed to oblivion... and a real physical market will arise.

 

Mon, 09/26/2011 - 05:12 | 1710214 Mr.Sono
Mr.Sono's picture

and when it does, there won't be physical in the market. hmm just wonder how long it will take before this happens.

Mon, 09/26/2011 - 05:54 | 1710259 Snidley Whipsnae
Snidley Whipsnae's picture

"and when it does, there won't be physical in the market."

Yes, there will be physical for sale in the market. At what price?... Now, that is the question you should have asked.

Another question you should be asking is: Will fiat currencies continue to be accepted for physical gold... and, if so, for how long.

Mon, 09/26/2011 - 07:32 | 1710337 Mr.Sono
Mr.Sono's picture

well thats the thing, who would accepted fiat currencies for gold? if people who buy gold know that fiat won't last, why would some one sell it. only time to sell is when you get new money system so that you would be ahead of the pack to invest what the future holds.

Mon, 09/26/2011 - 04:08 | 1709987 Mr.Sono
Mr.Sono's picture

yeah that pretty odd. i was about to load up.

Mon, 09/26/2011 - 04:23 | 1709988 Smithovsky
Smithovsky's picture

futures markets open at 6pm EST on sunday - i doubt they're stupid enough to not hedge so that just leaves too lazy to start working on a sunday when demand is skyrocketing.  not the brightest bulbs there.  they get the coins from the mint at spot+$2; they could charge a huge premium over the spot and people would still buy because it's down so much.  move on to the next dealer, this one is obviously run by a bunch of clowns

Mon, 09/26/2011 - 04:25 | 1710063 Mariposa de Oro
Mariposa de Oro's picture

Funny you mention a huge premium. I noticed the premium for a Mexican Onza at Apmex is now $74.99. I'm pretty sure it was $64.99 a few days ago.......

Mon, 09/26/2011 - 04:45 | 1710104 Smithovsky
Smithovsky's picture

of course - gold was $1900 a few weeks ago and is $1600 now, so they figure their customer won't care about another $10.  to them, however, it's an extra 100-150% profit (assuming they pay a 3% gold coin premium to the mint like in US).

Mon, 09/26/2011 - 08:06 | 1710418 DosZap
DosZap's picture

Mariposa,

ApM&%,has turned into the biggest whores in the market.

I used to use them exclusively,until I found out that JPM is their bank,then it was a no brainer.

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