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ProShares UltraShort Gold Message Board

  • keybotthequant keybotthequant Aug 11, 2011 9:34 AM Flag

    Margin Raise - Silver Chart Provides Clues

    Just as Keystone used deductive reasoning to call the margin hike in gold last night, a further exploration of what may come is in order. Let's look to the silver chart that experienced a forced slap down when margin requirements were raised in late April. As Keystone discussed over the last couple weeks, the silver margin increase occurred a day after the FOMC meeting in late April. The gold margin increase last night occurred one day after Tuesday's FOMC meeting.

    What happened during the silver top three months ago? How can it chart a path for gold price, or can it? The silver margin increase announcement occurred in the first red box late April. Note how the silver price took it in stride for the first couple days, afterall, gold and silver were on a rampage higher, and silver was in a parabolic up move. But the new requirements were in effect as of the end of day Friday for silver, therefore, you see the true affects in the larger red box when traders came in on Monday and had to adjust their accounts. Silver fell off a cliff.

    The interesting part of the silver move is that the first announcement was for a 9% hike in margins. This was followed up by further margin increases in the days following; further increases hit during the first week of May. The second margin hike was announced after silver had already dropped by 17% (red horizontal line). This accelerated the move south to push silver into a collapse as the margin increases were piled on. Silver dropped 30 to 35% in only five days and hovered around the 35% drop area for two weeks following.

    That was silver, what about gold? Let's follow the same exercise only substitute gold in place of silver. All the same steps are ocurring so far. Gold went into a parabolic move, the FOMC meeting occurred this week, then a day later the CME raised the gold requirements. Note that the gold margin was increased by 22%, not the 9% used for silver. The silver margins were increased several times since the 9% did not have the desired affect. Thus, the CME must have learned from silver and went straight for a 22% raise for gold from the start. For silver, the combination of all the silver raises totalled an 84% margin hike. Thus, if gold is targeted similarly, the 22% is only one-fourth of the total hikes coming over the next week or two.

    Let's attach some numbers to gold using the silver move as a guide. 1800 is a nice round number for the gold top. A 17% pull back would be 325 points, or a target of 1475. If gold follows silver's example, gold will start to pull back substantially during Friday's trade (tomorrow), and continue to slide all next week. Expect further margin hike announcements for gold to come from the CME next week, possibly the 1500 number triggering the further margin hikes to accelerate any slap down in the yellow metal. From 1800, a 35% pull back would place gold at 1200.

    A move in gold down to 1500 and then 1200 seems ridiculous with the Euro woes but remember that everything in markets is closely linked. Odd scenarios may come into play such as this move into deflation now will cause folks to seek cash, which may require liquidation of gold holdings. Some traders may lighten up on gold immediately due to the silver memory in mind. Others may sell gold to raise cash as their equity positions continue to trail off. Hedge funds, some may be blowing up as this is written, that have large gold holdings may liquidate to meet redemptions. These are simply a few of the possible scenario's. For now we watch but if gold follows the silver example above, look for a move from 1800 to 1500, continued margin requirement raises will occur next week for gold, and the goal for price may be the 1200 area that would occur over the next couple weeks. Time wil tell.

    For silver chart use search box above for keystone speculator.

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    • Thanks....

    • I don't think the CME can raise margin on things in order to effect the price. If they do that, they won't stay in buisness.

      What would happen if some dood at NASDAQ decided AAPL was too expensive and did something to effect it? AAPL would move to the NYSE.

      I think the explanation is that margine gets raised when volatility goes up. The subsequent margin increases for silver were probably because it got more volitile after the first margin increase. Hence more risky. Hence more margin needed.

      So, I suppose if this margin increase triggers more volatility, you could see another.

      Why would parties want a margin increase if there is increased volatility? So that all the counterparties have enough to cover their positions. Notice how that reason for doing a margin increase would cause people to do buisness with an exchange.

      I think attributing to an exchange an intent to "slap down" the price of anything on that very exchange this analysis must have a total lack of understanding of how these things work.

    • Thank you for that analysis!

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