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Silver leads dive in precious metals after 'margin' requirement is raised

November 9, 2010 |  7:02 pm

Wild times for precious metals got even wilder Tuesday.

The rocket-like performance of silver in recent days apparently prompted the parent of the New York Comex market to boost margin requirements on silver futures -– a move that fueled a steep sell-off in precious metals after regular trading ended.

Near-term silver futures, which closed at a new 30-year high of $28.90 an ounce in regular trading, up $1.47 for the day, dived as low $26.42 in electronic trading after the Comex’s parent, CME Group, announced the higher margins.

Margin is the amount an investor must put up to trade a futures contract. There also are minimum margin requirements to hold a contract. CME raised silver margins by 30%. The maintenance margin, for example, jumped to $6,500 per contract from $5,000.

Margins typically are raised on futures contracts in times of extreme volatility. Silver prices had soared 23% just since Oct. 25 as money continued to pour into commodities in general.

The question now is whether the margin move will drive more investors out of the silver market. In electronic trading Tuesday evening the price had recovered somewhat, to about $27.40 an ounce, but that still was down 5.2% from closing high in the regular session.

Gold, which rose as high as $1,423 an ounce in regular trading before pulling back to close at $1,409.80, up $7 for the session, fell as low as $1,382 in electronic trading. The metal was recently trading at about $1,399.

It may not help the metals if their archrival, the U.S. dollar, continues its recovery. The DXY index of the dollar’s value against six other major currencies was up for a fourth straight session in Asian trading early Wednesday.

Have the dollar bears been sated for the moment?

-- Tom Petruno

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