Best Financial Markets Analysis Article I was fully expecting a non-eventful Sunday afternoon when out of no where, precious metals started their contest of vertical drop, as shown in the following live charts from Kitco.com as of Sunday, May 1, around 7:00 pm EST.

As expected, silver is the undisputed champion, dropping about 10% from the previous day's close, glod, platinum each went down about 7.5%, while palladium lost about 2% (percentage based on spot prices on charts).

For now, there does not seem to be any significant event that could prompt such a move in precious metals (Bin Laden's death is not considered a significant event for the silver market to drop double-digit).  So, my best guess is that this Sunday sell-off is most likely related to the recent margin hikes by CME and MF Global that finally took their toll on the Silver market, forcing some big players to liquidate positions triggering a cascading stops to be executed.

According to Inside Futures, MF Global implemented a 175% margin increase over the CME's recent 9% margin hike. Moreover, Bloomberg reported on the evening of Sunday May 1 that the CME imposed another incrase of the initial margin by 13% to $14,513 per contract from $12,825, to take effect after the Friday close. Margins were $4,250 a year ago.

Such a huge margin increase typically will trigger a mass liquidation and reduce traders' participation in the silver market, which would also trigger sell offs in other commodities.  Crude oil and copper were both traded modestly lower, partly responding to the movement in precious metals.

Meanwhile, amid silver's recent huge runup, some investors are moving ot take profits, while U.S. Commodity Futures Trading Commission data showed hedge-funds and other large speculators cut their net-long positions in New York silver futures by 26% in the week ended April 26.

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at http://www.econmatters.com/.

© 2011 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Comments

g kaiser
02 May 11, 11:50

drop in price of gold

The drop in the price of gold is nowhere 7.5%. Check you calculator.

As for the drop, it is only in dollars. In CHF, there is a price increase.

That would indicate that it is not so much a drop in the price of gold, as it is a (temporary) increase in the value of the Dollar.

peter
02 May 11, 13:05

gold hits record intraday high today

gold hit an all tme intraday high today and has since backed off but looks like the trend is for higher gold prices in the days ahead. Silver looks like it's consolidating below 50 for the time being but that's typical of PM'a when they get near long term resistence levels..they always get close up and then back away to conslidate before moving into record territory. We could consolidate for several months as we did last summer but I wouldn't be surprised if we got a silver surprise and saw silver break above 50 very soon: Hi Ho Silver Away :)

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