"groundhog day for silver - again"

GroundHog Day for Silver - AGAIN

This seems to be a pattern much like the movie starring Bill Murray where he gets trapped in a day which keeps repeating itself until he gets it right. With the Comex however it seems to be a matter of seeing how many small specs (and even some larger ones) they can take out of the silver market so as to make certain that the perma shorts (which by the way are voting members at the exchange) can recoup the entirety of their paper losses they suffered as silver roared higher from down near $26 back in January of this year.

For the second time in a week, and for the FOURTH time in two weeks, the exchange is once again hiking margin requirements for trading silver. Actually, it will be FIVE Times in less than 3 weeks with Monday's hike.

This time it advances to $18,900 from the current $16,200 effective as of the close of business tomorrow or Thursday. Maintenance margin jumps to $14,000 from $12,000. Hedgers are facing an increase as well but it is to maintenance margin levels.

If that were not enough, then come Monday the margin rate gets hiked AGAIN, jumping to $21,600 with a new maintenance margin of $16,000. At current silver values, that amounts to more than 10% of the total value of a single silver futures contract if you want to play.

Obviously this is going to produce even more volatility as the small specs exit the market, most of them being unable to afford to trade it except for all but the specs with the deepest of pockets. A lot of the small guys are probably already wrung out but those who might have been long from lower levels and were unaffected by the margin hike due to the paper profits they might have from being long at a lower level could be at risk if this market continues dropping.

This is ostensibly designed to protect the integrity of the clearing houses as well as giving some brokers the cover they need to hike margins on their clients to protect their own firms in the event of trades gone sour. Keep in mind that these are MINIMUM MARGIN REQUIREMENTS. Brokers are free to set customer margins wherever they wish as long as they meet minimum. That means they could go to $25,000 or even $30,000 per contract if that is what their firm feels more comfortable with.

I suspect however that there is more here than keeping the integrity of the clearing houses. It is too much too fast given the already steep decline in the market. It smells like a deliberate effort is being orchestrated to take the metal lower and rescue the shorts who as I said previously, are voting members of the exchange and who could no longer handle the bleeding of their accounts.

Nothing like transparency and free markets....

Dan Norcini at http://traderdannorcini.blogspot.com/2011/05/groundhog-day-for-silver-again.html