Silver collapses and gold sells strongly after CME margin hike

The precious metal complex (gold, silver, platinum and palladium) traded under pressure, with all precious metal futures closing sharply lower that day. Silver futures suffered the biggest drop, with the most active March contract losing $ 2.70, down 9.17%, and is currently pegged at $ 26.71. The move followed the Chicago Mercantile Exchange (CME) decision to increase the margin requirements needed to trade a single Comex silver contract by 18%. The old margin requirement of 14,000 per 5,000 ounces per Comex contract at $ 16,500.

Given the extreme volatility that has led precious metals to trade significantly over the past three trading days, the CME Group’s decision to increase margin requirements for silver futures is a normal response. to increased volatility. It is the exchange that guarantees the performance of any placed transaction. The exchange ensures that the winners will be paid and facilitates this by debiting the accounts of those traders who are experiencing losses.

Silver’s dramatic drop came after a three-day rally in silver futures took the price from a low of $ 24.92 on Thursday January 28 to a higher high yesterday at $ 30 an ounce with a settlement price above $ 29 an ounce yesterday.

Did Silvers decline, causing extensive damage to the tech boards?

According to our technical studies, silver has not suffered any major damage to the cards. Although the current 9% drop has been severe, silver remains above the three major moving averages; 50, 100 and 200 day moving averages. It also remains above the long-term Fibonacci retracement of 23%. The data used for this Fibonacci retracement is a long-term study that begins in mid-March 2020, when silver prices traded below $ 12 an ounce, all the way to August 2020 highs. , when money flirted unsuccessfully with $ 30 an ounce. That same strong resistance level that was evident at $ 30 in August of last year continues to be a major technical resistance point. The golden cross identified on January 21 between the 50-day and 100-day silver moving averages remains intact.

At the same time, the price gap or vacuum that was created from Friday’s close last week. The dramatically higher price that came when markets resumed trading in Australia on Monday morning has been met. Most technicians in the market believe that gaps or price gaps have a high probability of being filled. When these deviations occur during a bullish rally, it is not uncommon to see prices fall to close the gap.

Gold closes below its 200-day moving average.

However, on a technical basis, gold took some chart damage today as it fell 1.36% or $ 25.40 with the most active Comex contract of April 2021 currently pegged at 1838. , $ 50. This puts the current prices below the three major moving averages (50, 100 and 200 days). Today’s drop also brought current prices to just below the 38.2% Fibonacci retracement, which occurs at $ 1,843.30. The timeline of the dataset used for the Fibonacci retracement is the same as that used for silver. It started when gold traded at a low of $ 1,443 in mid-March last year, until a new all-time high reached in August 2020 when gold hit $ 2,088 an ounce.

Although from a technical standpoint gold prices have taken a hard hit, the fundamentals of price support are still extremely strong. The Federal Reserve maintains an extremely accommodating monetary policy, including interest rates close to zero and quantitative easing. Coupled with the $ 4 trillion tax expenditure last year and President Biden’s current proposal to initiate another round of stimulus, which will add an additional $ 1.9 trillion to the national debt, one can argue for ‘strong fundamental support for precious metals. complex including the price of gold and silver.

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Wishing you, as always, good trading and good health,