Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Silver edges up as new trading week begins

May 8, 2011 |  8:19 pm

Silver prices may finally be stabilizing after last week's plunge.

May silver futures rose 66 cents, or 1.9%, to $35.94 an ounce in trading on the electronic Globex market Sunday evening.

Gold also was higher, with June futures adding $6.30 to $1,497.90 an ounce.

Silver crashed last week, leading a broad sell-off in commodities, as some investors and traders cashed out after the spectacular rally in raw-materials prices since August.

Silver, the "poor man's gold," had become a favorite of small investors looking for a hedge against rising inflation and/or worried about the dollar's slumping purchasing power. But many of those investors may not have had an appreciation for just how volatile silver has been historically -- in both directions.

Once the downturn began last week the selling quickly cascaded as some people rushed to try to protect their profits. Silver had rocketed 57% from Jan. 1 through April 29, when it hit a 31-year high of $48.58 an ounce.

In five straight losing sessions last week silver futures sank 27%, ending Friday at $35.28 an ounce.

Commodities overall weakened as some disappointing U.S. economic reports raised fears of slowing demand for raw materials. But the data just gave some commodity investors a convenient excuse to sell and book some of their gains. So did a modest rebound in the battered dollar.

The Thomson Reuters/Jefferies CRB index of 19 major commodities had risen 11.3% year-to-date through April. The index surrendered most of that last week, falling 9% for the five days.

The selling wave in silver also was fueled in part by the decision by CME Group, parent of the Comex futures exchange, to continue raising margin requirements on silver futures contracts as a way to damp volatility. Margin is the minimum cash deposit investors must put up to maintain or trade the contracts.

[Updated on May 10: An earlier version of this post said CME raised margin requirements to damp speculation in silver. CME said its moves were intended to address market volatility, not specifically to target speculative activity.]

The initial contract margin will rise to $21,600 effective with the end of trading on Monday, the fifth increase in two weeks. The CME has boosted the required initial margin 84% from $11,745 on April 25.

U.S. crude oil futures also were trading higher Sunday evening after plummeting 15% last week. Near-term futures were up $1.50 to $98.68 a barrel.

-- Tom Petruno


How small investors fueled a modern-day silver rush

Commodities, Treasury bonds signal unease about economy, but stocks hold up