Silver fell more than 5% on Tuesday as a GameStop-style buying spree among small investors that took prices to a near eight-year peak appeared to fizzle out following a margin hike by the Chicago Mercantile Exchange.
Spot silver fell 4.6% to $27.64 an ounce by 1127 GMT. On Monday it jumped 7.3% to its highest since February 2013 in the latest leg of a retail-driven buying frenzy in heavily shorted assets such as U.S. video game retailer GameStop.
CME Group raised maintenance margins on Comex 5000 Silver Futures by 17.9% on Monday, and posts on the WallStreetBets Reddit forum at the centre of the past week’s action argued for traders to steer clear of the metal.
“The CME move is taking some froth off the market,” said StoneX analyst Rhona O’Connell. The correction was inevitable and in technical terms, silver is still overbought, she added, with recent moves not driven by fundamentals.
Raising the margins investors must post to trade is a familiar move by CME, the world’s biggest futures and commodities-centric market, when it aims to head off unusual market stress and volatility.
Investment bank Goldman Sachs said in a note that a silver short squeeze is “unattainable”.
“A co-ordinated surge in investment by retail traders into the silver market would simply raise volatility and generate small regional dislocations in supply-demand dynamics,” analysts at the bank said.
The retail frenzy that started last week has left global dealers scrambling for bars and coins to meet demand, while also pushing the U.S. Commodities regulator to monitor the market.
Spot gold, meanwhile, fell 0.7% to $1,847.11 per ounce. U.S. gold futures shed 0.7% to $1,850.60.
“The silver market also cannot be looked at in isolation,” HSBC analyst James Steel said in a note, and the metal may weaken if gold does not move higher.
The current gold/silver ratio is “well below historical averages, and investors may recognize this level as straying too far from historical norms”.
Platinum declined 2.1% to $1,104.18, while palladium rose 0.9% to $2,264.94.
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