CME Hikes Silver Margins By 18%: Paper-Physical Disconnect Set To Explode

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by Tyler Durden
Monday, Feb 01, 2021 - 06:04 PM

Earlier today, around the time the fireworks in silver hit which sent the price of the precious metal to an 8 year high in its biggest one-day gain "since Lehman", we had a feeling of what was going to happen after the close when we tweeted that "the CME can easily hike silver margins, but it has no control over the physical market. Just how disconnected can paper and physical silver get."

Well, we didn't have long to wait: shortly after the close, the CME Group announced it was raising margins on Comex silver futures by 18% after futures surged to an eight-year high, the exchange said in a statement.

Margins will rise to $16,500 per contract from $14,000, effective Feb. 2, according to the exchange. "The decision is based on “the normal review of market volatility to ensure adequate collateral coverage,” it said in a statement.

In kneejerk reaction the price of silver dropped 2%, sliding from just above $29/oz to just below.

While the margin hike has predictably pressured the price of paper silver lower, the question is what happens now to physical silver which is completely independent of the CME's margin whims - as we noted above - and where the disconnect between paper and physical just hit an all time high as insatiable demand in the physical space is being offset by attempts to depress paper prices. We showed this in the delta between the price of one American Eagle coin and one SI(lver) future, which just exploded to an all time high of 30%, or almost $14 per ounce.

And that's of course assuming one can actually find physical silver out there...