NEW YORK/BANGALORE The CME Group (CME.O) sharply raised silver futures margins for a fourth and fifth time in under two weeks, an 84 percent rise in trading costs that has helped provoke a nearly unprecedented sell-off.
The 20 percent slide in silver prices since they touched an all-time high of $49.51 an ounce on April 28 has been in large part driven by selling from speculators who may be unable or unwilling to bear the surging cost of holding positions.
Holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust, fell by 521.8 tons, or 4.78 percent, from the previous session to 10,387.26 tons by May 4.
The CME, which typically raises margins when volatility in markets increases, dealt the latest blow on Wednesday, announcing two separate, successive margin hikes.
It said margins would rise to $14,000 per contract from$12,000 effective Thursday, May 5, and again to $16,000 effective Monday, May 9. Prior to April 25 the margin stood at $8,700 per contract. One contract holds 5,000 ounces, worth about $200,000 at current prices.
"The catalyst for the silver move could be the margin requirement hikes, squeezing out the pure short-term speculators that were playing a hot segment," said Joe Cusick, senior market analyst at Chicago-based online brokerage optionsXpress.
Silver prices tumbled 5 percent on Wednesday, taking three-day losses to 18 percent, only the sixth time since 1983 that prices have fallen so sharply in such a short time.
The volatile silver market has become a hot topic in financial circles over the past six months as it surged more than 170 percent from August, outstripping gold's one-third rise and attracting a flow of trend-chasing money.
But its recent ructions have shocked even veterans, with implied volatility in the options market surging from 37 percent to a post-2008 high of more than 55 percent in just two weeks, according to Reuters data based on 30-day at-the-money call options traded on COMEX.
(Additional reporting by Doris Frankel in Chicago and Koustav Samanta and NR Sethuraman in Bangalore; Editing by Dale Hudson)