Today's Major Market Move - Silver Futures Up 46% for the Year

Silver prices have been insanely volatile in the past few months. On 5/22 we discussed how prices had dropped by 24% in a month which happened to coincide with a series of margin rate hikes by the CME. Since then the price has resumed the upward trend and recently eclipsed the $40 mark, yet again.


Click on the image for a larger view.Click here for the current version of the above chart.
The margin rate hikes occurred in April, right before the cliff dive at the beginning of May. Whether the rate hikes had a direct impact, a merely psychological effect or no effect at all remains a subject of debate. I happen to agree with the opinion expressed by Karl Denninger in this post, in that the size and direction of any move caused by rate hikes depends on where and how much leverage is being employed. If leverage (i.e. borrowing on margin) is concentrated on the long side, then rate hikes should result in a drop in price as those positions are closed out (assuming that the holders of those positions don't have the desire or ability to bring in additional capital to meet the new margin requirements).

Silver is back to being the best performing commodity for 2011, followed by wool and gasoline.


Click on the image for a larger view.Click here for the current version of the above chart.