WHY Did the Silver Correction Occur?

            This is the question everyone is asking.  Silver started out at the beginning of the week in the low $40’s and gold at nearly $1800.  From there silver fell to $36 on Thursday, to $31.03 on Friday, and then to $26 in the early hours of Monday morning.  Gold followed a similar path ending its fall at $1531 before coming back up to $1600 even.  So what caused it?

            On Thursday, after a 9% fall in silver and a several percent fall in gold there seemed to be no clear reason for the fall.  One factor that partially contributed was the massive fall in the stock market on Wednesday and Thursday.  Investors needed to liquidate both gold and silver in order to cover margin calls and other losses they had incurred.  However, this reason alone was not sufficient for nearly a 10% fall in silver.  On Friday silver fell a whopping 15%, which is the largest single loss I have seen in a single day and gold fell over 5%.  At the end of the day, the reason for the fall became apparent.  The Chicago Mercantile Exchange(CME) had raised the margin requirements on gold, silver, copper, and platinum by nearly 20%.  There is a good degree of speculation and chatter, that seems to suggest that the raising of the margin requirements was leaked before the announcement, which started the massive sell of.  Several large institutions in Europe and the US began to dump their entire holdings before the announcement was even made.  It is important to note that there is no proof of these allegations, but there is a good degree of circumstantial evidence. 

            When the market opened on Sunday afternoon the market once again began to fall from its $31.03 close to a low of $26 in the early hours of Monday morning.  The Shanghai Gold Exchange hiking margin requirements by 20% largely caused the fall.   Once the US markets opened up silver began to climb again and now currently sits at $30 an ounce.  Both the Chicago Mercantile Exchange and the Shanghai Gold Exchange have stated that if volatility continues additional intervention may occur.  Watching these two exchanges will be key over the next couple of days.  This also is presenting an incredible buying opportunity.

Josh Renfro

President & Founder

Lone Star Bullion LLC

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