Margins to be lowered on various PMs

jim4silver · Feb 10, 2012

I am reading on several sites tonight that starting Monday after the close of business: silver, platinum, copper and gold will have lower margin requirements on the Comex. I guess we will see what if any effects that will have on the prices. Looks like the manipulation theorists' theories will be put to the test somewhat.

Jim

Marchas45 · Feb 11, 2012

jim4silver said:
I am reading on several sites tonight that starting Monday after the close of business: silver, platinum, copper and gold will have lower margin requirements on the Comex. I guess we will see what if any effects that will have on the prices. Looks like the manipulation theorists' theories will be put to the test somewhat.

Jim

Jim if you will can you explain that to me, what do you mean by lowering margins? This is all new to me. :-[

Thanks Charlie

jim4silver · Feb 11, 2012

Marchas45 said:
jim4silver said:

I am reading on several sites tonight that starting Monday after the close of business: silver, platinum, copper and gold will have lower margin requirements on the Comex. I guess we will see what if any effects that will have on the prices. Looks like the manipulation theorists' theories will be put to the test somewhat.

Jim

Click to expand...

Jim if you will can you explain that to me, what do you mean by lowering margins? This is all new to me. Thanks Charlie

Charlie,

When somebody buys or sells a futures contract, they have to place an initial amount of money into their account to buy into their position, then they have to keep a certain level of money in their trading account while they hold that position. After each trading day money is added or removed from a future trader's account depending upon whether his position gained or lost that day. The margin is to make sure there is adequate money to cover that trader's position if the market moves against him. For example, a standard size silver contract controls 5000 ounces of silver. If I am long (buyer) on silver and hold one contract and silver drops $1 in a trading session, $5000 is removed from my trading account and added to the short's account (seller) who is on the other side of my trade. If silver goes up $1 instead that same $5000 is added to my account. For every futures contract there is a buyer and seller. It is kind of like a tug of war.

In this bull market when gold and silver were going up they have at times raised the amount of money a trader has to have in their margin account for PM contracts. This is said to have a negative effect on smaller traders and thus cause the futures prices to go down when they have raised the margin amounts in the past-- the theory being most smaller traders are most often longs (holding the position that PMs are going up in price) and they cannot afford higher margins and are in a sense forced out of their positions. The reason given for raising margin rates is that during times of higher volatility the margin amounts need to be higher because the price swings each day are greater and it is necessary to guarantee that a person's losses will be covered. Some PM pundits say the margin increases are designed to keep PM prices down during a bull market because by raising them, the smaller traders who are long are forced out and the big wealthy institutions who short (hold the position that the PMs are going to drop in price) the PMs come out ahead.

Now it appears they are going to lower margin requirements at a time when the prices have been going up recently. In my opinion, if the above mentioned PM pundits are correct in their assertion that margins have an effect on prices, this should keep the prices going up because it will be cheaper to hold a PM futures contract, thus benefiting the smaller traders who are supposedly far more buyers (longs) than sellers (shorts). We shall see.

Jim

Marchas45 · Feb 11, 2012

Your the man Jim and good friend. Thank you for explaining it so precisely, so this old fart could understand . :thumbsup:

Dave44 · Feb 11, 2012

That is indeed a succinct and knowledgeable explanation :headbang:

!!!!!

I am sure you realize that I am one who feels like the PM market is being manipulated. I think that this is part of the tactics, But a small part.
Currency manipulation, outright propaganda about stability of currency, propaganda of any nations GDP and Inflationary indices all contribute to the myriad of ways we are all being lied to.

I have to wonder how you can measure the rate of inflation when you take out the things every American needs the most, food and energy?( I mean besides substituting steak for hamburger, or pork chops for spam).

I believe that there is a lot more manipulation than margin. How much gold has China bought in the last 12 months?