Silver futures plunged the most since January as exchange owner CME Group Inc. raised the cash deposit required for trading after prices reached a 31-year high last week. Gold extended its rally to a record.
Margins for speculative positions on the CME’s Comex exchange in New York rose 13 percent to $14,513 per silver contract after the close of business on April 29. Margins were $4,250 a year earlier. Prices gained 28 percent in April, the largest monthly gain since January 1983, as investors bought precious metals as an alternative to a falling dollar. Gold reached a record $1,577.40 an ounce today on the Comex.
“Silver just got out of control on the upside, and it was only a matter of time before it came down,” said Matt Zeman, a strategist at Kingsview Financial in Chicago. “The higher margins are going to squeeze out the little guys. We’ll see the spread between silver and gold close and a little more buying in gold.”
Silver futures for July delivery plummeted $2.515, or 5.2 percent, to settle at $46.084 an ounce at 1:52 p.m. on the Comex, the biggest decline since Jan. 4. Earlier, the price slipped as much as 13 percent. Still, the metal has more than doubled in the past year.
Gold futures for June delivery rose 70 cents to $1,557.10 and have gained 32 percent in the past year.
Speculators cut their net-long positions in New York silver futures by 26 percent in the week ended April 26, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will gain, outnumbered short positions by 24,995 contracts on the Comex, the CFTC said. As of April 29, the value of one silver contract was $242,995.
Failed at $50
Silver also may have fallen after failing to top $50 last week, Zeman said. The Comex record is $50.35 in January 1980.
“Silver takes three cracks at $50 and doesn’t make it,” Zeman said. “That’s an excuse to take some profits.”
Silver may rebound as some traders buy back the metal to cover short positions, said Frank McGhee, the head dealer at Integrated Brokerage Services said.
“The margins are catching a whole new crop of people the wrong way,” McGhee said.
Silver has had the biggest gain this year on the Standard & Poor’s GSCI Index of 24 commodities. The metal led the way in April as commodities beat stocks, bonds and the dollar for a fifth straight month, the longest stretch in at least 14 years.
Traders may be unwinding long-silver and short-gold positions, according to McGhee, of Integrated Brokerage.
“Gold has done tremendously,” McGhee said. “People were hedging into gold because silver was falling so much.”
The dollar fell for the 10th straight session against a basket of six major currencies as investors sought higher- yielding assets. The Federal Reserve last week said borrowing costs would remain at a record low for an extended period.
“Gold is now a currency,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “It will supplant the yen as the third-most-important reservable currency amongst the industrialized world’s central banks.”
Platinum for July delivery rose $10.20, or 0.5 percent, to $1,875.70 an ounce on the New York Mercantile Exchange. Palladium for June delivery dropped $8.05, or 1 percent, to $784.10 an ounce.
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