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Silver and gold prices driven down by the CME with increased margin requirements

Jun 28, 2013

"Nobody wants to own gold anymore," Frank McGhee, the head dealer at Integrated  Brokerage Services LLC in Chicago, said in a telephone interview. "We're getting  a continuous grind down with heavy liquidation. All the news about the US is not  helping, and the markets are looking forward" to better prospects for the  economy, he said.

Really? There's a feeding frenzy going on in India and China. What they mean is that no one wants to speculate in gold futures any more. You know, the paper kind or the electronic variety of gold that has no specific gravity.

When they keep hiking up the margin requirements to purchase gold or silver contracts, it means that people can't buy as much as they want. Meanwhile, the "sellers" are allowed to sell all the gold and silver they want, even if they have none to sell. The market is rigged so that buyers are put at a disadvantage. When there are fewer buyers than sellers, the prices drop.

It is not long before the buyers realize that the market is being rigged against them. So they stop buying futures contracts, because they know the rigging will cause the prices to drop. This only compounds the drop in price, as the riggers intended.

Here is an article from February 18, 2011, speaking of multiple increases in margin requirements:

CME Group announced yet another series of margin requirement increases for gold and silver futures contracts.

Effective after the close of business today, initial and maintenance margin requirements on gold and silver will increase 50%, according to CME Group.  CME is the owner and operator of the New York Mercantile Exchange and Commodity Exchange (COMEX), on which precious metals futures contracts are traded.

Today’s announcement follows several margin increases over the past year, as the exchange seeks to limit speculation as precious metals continue to surge higher.

Here is another margin hike reported by Bloomberg on August 11, 2011.

Aug. 11 (Bloomberg) -- CME Group Inc., the world’s largest futures market, raised the margins on gold contracts by 22 percent after prices surged to a record on increased haven demand amid a deepening rout in global equities.

Here is still another article from September 26, 2011:

CME, the world’s largest futures market, said it will increase the collateral requirements for gold by 21pc, silver margins by 16pc, and copper margins by 18pc.

This means that speculators investing in the benchmark gold futures contract, which is based on 100 ounces of gold, will have to deposit $11,475 to open a position. For silver, the minimum cash deposit was raised to $24,975 from $21,600.

It doesn't take a rocket scientist to see that if a contract for 100 oz. of gold increases 21% and silver margin requirements are increased by 16%, then people will be able to buy fewer contracts as they speculate on gold and silver. In 2011 the prices were going through the roof, so the CME decided to rig the market to slow down the rate of buying and drop the price far enough to make the dollar look better. Since then, the dollar really isn't any healthier, it just looks that way.

Here is the latest CME attack on gold and silver prices, beginning June 24, 2013:

"Comex 100 Gold Futures initial margins for speculators up by 25%"

This is why the prices dropped so dramatically this past week. The speculators knew that raising margin requirements was an attack on the spot price of gold and silver. So they sold what they had as quickly as possible. That is why "nobody wants to own gold anymore." The CME is doing high fives, saying, "Mission accomplished."

Meanwhile, the smart buyers are those who buy physical silver or gold. Those who deal in paper are getting fleeced. As prices drop, people in India and China and other countries are buying as much as they can import. The government of India has even raised import duties of gold to slow the buying frenzy in that country.

Gold traders in India, the world's biggest buyer of the metal, struggled to get supplies from importing agencies, to cover a small rise in demand triggered by a fall in prices to their lowest level in a month.

In a bid to contain the record current account gap, the government banned consignment imports, making it difficult for smaller jewellers with lower working capital to source supplies. The government also raised the import duty to eight per cent.

"It's very difficult to get supplies...." said Haresh Acharya, head of bullion desk at Parker Bullion, which has reduced purchases to 200 kg a week from a similar quantity per day before the curbs were imposed.

Premiums stayed steady at up to $20 an ounce on London prices, traders said.

What will happen when all the physical gold and silver is purchased by people or governments that won't sell it at the current low price? The result of government interference in gold/silver prices will eventually shut down the market for paper silver. Buyers will understand that the price of gold and silver has little or nothing to do with supply or by real market forces. The only relevant fact left will be to see what the CME is going to do next, for that has become the real price driver.

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Category: Financial

Dr. Stephen Jones

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