Whack a Silver (and Gold, Too), Like a Clockwork

The reason for the sharp intraday reversal from post-Hunt brothers' high on silver? CME hiked the margins, nth time, effective on March 25.

Here's the intraday chart of SLV, an ETF that tracks physical silver (and supposed to be backed by physical silver - good luck with that).


Zero Hedge (emphasis added 3/24/2011):

In tried and true fashion, just as Silver was about to viciously destabilize the global capital markets as it surged to new 31 year highs, the CME stepped in and did its usual 3-6 half life intervention by hiking initial and maintenance margins on silver futures from $11,138 and $8,250 to $11,745 and $8,700 respectively. This is merely the latest margin hike in what appears to be a neverneding series designed to reduce speculative "fervor" courtesy of endless liquidity. What it will do is merely provide a better entry point for those who by now realize that silver's next stop in the fiat endgame is $40, then $50, and so forth. Naturally, the price drop in silver caused gold to sell off too. And now that the CME accepts gold as collateral, we can't even visualize the reflexive loops that develop once the metal that is also a collateral currency becomes more and less valuable at the same time.

And while they are at it, the CME decided to remove some of the Uranium volatility by hiking maintenance and initial margins in Uranium Futures (UX) by about 50%.

Whatever.

I'm sitting on my precious metal stocks positions. As Tyler Durden says, the "half-life" of CME intervention is rather short.

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Let It Snow, Let It Snow, Let It Snow....If You're Long Snow Derivatives

Did you know that you can trade 'snow derivatives' on Chicago Mercantile Exchange (CME)? It has been available since 2009, and ever since, we've had the record snow year after year.

From Marketplace @Public Radio (2/2/2011):

Heidi Moore: In 2009, the CME first allowed investors to predict snowfall and make money on the exchange if they were right. We've had record snowfall ever since.

CME's Tim Andriesen says companies need weather derivatives to hedge against losses when rain, heat, or snow can hurt their businesses.

Tim Andriesen: Everybody says you can't manage the weather, which is true. But you can manage the financial consequences of the weather.

Andriesen sees sunny skies ahead -- financially. Investors have bought five times as many snow contracts as last year.

Jeff Hodgson of the Chicago Weather Brokerage sells snowfall derivatives. Here's how they work:

Jeff Hodgson: I'm going to pay $10,000, and if it snows over 40 inches in Chicago, that option will be worth over $25,000. If it doesn't snow over that level, then I lose my $10,000.

Snow removers and insurance companies have the most to protect, so they're his best customers. Of course, snow derivatives only cover the cost. Someone still has to shovel it all away.

Chicago Weather Brokerage's website suggests it also offers temperature derivatives and rain derivatives. Checking CME's website, I've also found derivatives on frost and hurricane.

Hightlights of the snow derivatives (info from CME):

• Contract size: $500 times CME Snowfall Index
• Product: snowfall in inches in select US cities
• Contract months: Nov, Dec, Jan, Feb, Mar, Apr
• Hours: Open Outcry Sun 5PM - Fri 3:15PM
• Position Limits: 10,000 contracts all months combined
• Ticker symbol:

Boston - SB
New York - SX
Chicago O'Hare International - SW
Minneapolis International - BV
Detroit International - EK
New York LaGuardia - FG

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What Caused Precious Metal Sell-Off? CME to Blame?

It was not just gold, but other precious metals, too. Particularly silver, which hit $29 intraday and ended the day below $27.

Now, we may have a culprit whose mischief on behalf, no doubt, of the major bullion banks known to be very, very short silver caused the damage today not just on silver but across the board precious metals, dragging the stock market down along the way.

All it took was for the Chicago Mercantile Exchange, who operates COMEX, to change the margin requirements for silver.

SLV, an ETF that tracks silver, tumbled on almost 6 times the average volume.

From Zero Hedge:

PM Selloff Reason: CME To Raise Margin Requirements For Silver From $5,000 To $6,500

And if that doesn't work, there is always confiscation.

"CME confirmed silver margins raised from $5000 to $6500 (30%) effective 11/10 settl - no other metals effected"

Presumably, this affects the maintenance margin. And is a lovely way to kill paper longs.... but not shorts, of course.

This is also the last remaining self-regulating way for the market to tell the genocidal lunatic in the Eccles building to go fornicate himself, and his excess liquidity.

In case you don't know, "the Eccles building" is located at 20th Street and Constitution Avenue, N.W., in Washington, D.C., and it houses the Federal Reserve.

I don't think it was the "self-regulating way for the market", but "self-regulating way on behalf of J.P.Morgan Chase and HSBC".

It's getting to be a wild, wild world out there in the financial markets...

Zero Hedge has the actual announcement from CME.

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