We seem to have very different views.

Just one thing, I do not know how you can distinguish the demand for currency in private borrowing and actually having cash.

I mean it is the same thing - most people get the money from the banks.

Margin hikes hit gold pretty good, but absolutely monkeyhammered silver.

Damn I feel like I should buy some kg of silver. If only I wasn't so ideologically opposed to paying taxes on silver.

Then don't go with physical, or don't get delivery.

For example, you can open an account at goldmoney and have them store the silver for you for a reasonable fee.

I dont think margin hikes hit PM's. People woke up after the FOMC meeting and realized no more money printing and heavy deflation. The sell off started on wednesday. Furthered on Thursday and then Friday margin calls started coming. Gold was so over bought it was only a matter of time IMO. They had to hike margin after yesterday because the move was large enough to wipe any long out completely. The news of margin hikes might have come in the middle of the day at the earliest and accelerated the sell off a bit.

Wait so if the price goes down it makes sense to increase margin requirements??

Increasing volatility, so yes increasing margin makes sense.

That makes no sense. The margin requirements are not set in %, but in fixed USD amounts. If gold/silver/copper are worth less, the margin requirements should drop or at least stay where they were.

That they were raised as the price plummeted suggests ulterior motives to me.

I really don't much care, but the speculation is that the hikes were leaked ahead of time, which is why there was massive liquidation occurring ahead of the announcement.

It's not about the price dropping, its about the amount the price moves. A $250 move down in price costs someone holding 1 long contract $25,000. Even with the margin increase to $11,475/contract and using Friday's Dec settlement of $1639.8, people are still allowed over 14x leverage. That's pretty generous. If you don't have more than $11,000, you shouldn't be trading a hugely volatile contract worth $163,980 anyway.

But you were allowed 20x leverage just three weeks ago, and 18.5x last week.

Someone holding 1 long contract lost $25,000 and now has to put up another $2,025 above what they lost just to cover the margin.

What matters is not how much an asset goes down, but how much it goes down as a percentage of the current price. As the price is lower, the moves in USD will be lower as well.

I think if they were serious about setting margin requirements according to actual risk, they would set the requirements as a % of the value of the asset. They would also only raise or lower the requirements slowly to avoid causing major price shocks.

A much better method would be to factor in volatility and require margin as a percent of the value at risk.

i have like $4k saved up for my lasik surgery, god i want to buy silver with it so badly right now.

This is how they do it actually. The exact formula though is not public and I dont know why. You can find out somewhere on the CME website on what they consider when calc margin. Its a combination of volatility and contract size.

Thats possible but I dont buy it. You must read too much zerohedge. I think the selling is due to the exact reasons I stated earlier in the thread but basically we are facing a huge deflationary headwind. Copper dropped 25% in the last 10 days. Silver got crushed the last few days and gold was the last to be hit. Its just a coincidence they raised margins IMO.

I guess people got a hint of rising margins on copper 10 days ago?? Silver they must have heard about on tuesday and started selling. The gold traders must have been the last to hear the leak on margins and started selling thursday?? Doesnt add up.....

A good article on copper and deflation (from ZH lol) http://www.zerohedge.com/news/guest-...matters-copper

Commodities will continue to fall until a further QE is introduced to intentionally devalue the dollar as it will continue to rise in the face of deflation and contracting credit.

Here's Mish's take on the recent metals plunge. He doesn't see the margin hikes as the primary mover but one that exacerbated a sharp short term trend.

Of course everything is dropping until Ben announces QE3 or whatever it is. What happened yesterday was abnormal even relative to that because of the obvious disconnect between what happened to gold, silver and copper (which saw margin hikes) and everything else.

Because if they made it public they couldn't make stuff up to manipulate market moves.

There is no more credit and that's why the $ is rising?

confused.

Yep. Welcome to debt-deflation (for now).

Does less debt not mean less demand?

One of the scenarios that makes me (and I'm sure some others) bullish on gold actually involves this deflationary headwind you speak of and agree that it would be the natural process with no intervention. It's just that you seem to believe the Fed will stay on the sidelines throughout it. They may be there now, but I'm fully expecting them to jump back in the game as soon as the markets turn down and pressure is placed on the banks.

You may be a good enough trader to move in and out accordingly, but I think the more +EV play for me is using my active time on other sources of producing income, with a more passive buy and hold approach to gold, since I may not be able to time the shorter term, but presuming the % chance of more Fed QE is high enough, I come out more ahead with that EV and the time spent on my other ventures, than I would with using active time learning to trade the timing and not managing other projects or poker on the side.

Credit contracting means the overall money supply would be decreasing, meaning the value of dollars left in circulation goes up. In other words, deflation.

I do miss J.R. for not being around to explain a lot of this stuff anymore, but here's a couple of posts of his explaining it:
http://forumserver.twoplustwo.com/sh...37&postcount=3
http://forumserver.twoplustwo.com/sh...70&postcount=6

This also relates to my post above and why short term deflation isn't going to change gold or the dollars long term trajectories. That entire thread btw is a good read.

Yes, I posted in this thread.

But what I thought is that Deflation will destroy the currency because it means less demand for it.

I think you are misunderstanding deflation. currency is destroyed yes but there is never a lack of demand for currency. Do you know anyone who doesn't want money? Instead it's actually quite the opposite as no one can get credit so they demand money even more. It becomes more and more scarce as the supply shrinks. This obv raises the value and causes assets priced in dollars to decline.