Silver Margin Hike Underscores Need for Bullion Ownership

By: Jeff Berwick | Wed, Nov 10, 2010
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On November 9th the Chicago Mercantile Exchange said it will raise its silver futures trading margins by 30 percent to $6,500 an ounce from $5,000 an ounce effective November 10th setting off a rapid sell-off in the metal. No other margin requirement on any other metals was changed.

According to Reuters, "Exchanges often raise margins to mitigate risks as price volatility increases."

But, where is the supposed volatility in Silver? The chart below shows an incredibly orderly upward rise in silver.

Silver Continuous Contract Augist 2010 to Date

In fact, the only volatility you can find on the silver contract in the last four months occurred in the moments after the CME announcement as this intraday chart from November 9th shows:

Silver Spot Price November 9, 2010

Clearly silver was targeted as having "gotten too high". When was the last time margin requirements were raised on US Treasuries which are at all-time highs?

The financial authorities pulled the same chicanery in early 1980 when Nelson Bunker Hunt and Herbert Hunt had nearly cornered the market in silver. In 1979, the price of silver jumped from $6/oz to an all-time record high of $48.70/oz. The brothers were estimated to hold one third of the entire world supply of silver at the time.

But on January 7 1980, just like on November 9 2010, the exchange rules regarding leverage were changed, when Comex adopted 'Silver Rule 7' placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.


This Time It's Different - Rise of the Dollar Vigilante

There is a big difference between 1980 and 2010. Today it isn't just two rich brothers who are moving out of US dollars and other fiat currencies it is the entire population of the world - and it will only increase from here as people like Ben Bernanke continue to push their currencies into hyperinflation via programs deftly named, "Quantitative Easing".

Just as bond vigilantes brought the near hyperinflation of the 1970s to an end by selling government debt, today it is "dollar vigilantes", 6 billion people around the world who are slowly awakening to the mugs game of fiat currencies and central banking and are casting their own vote to sell dollars in favor of real assets such as gold, silver, agriculture and energy.


The Hunt Brothers Great Mistake

The Hunt Brothers were vulnerable because they borrowed money, or went on margin, to buy much of the silver they purchased.

Dollar Vigilantes today would be wise to own their gold and silver bullion in real bullion form and not in paper form to avoid the same fate. There is nothing stopping the CME from continuing to raise margins on gold and silver, even to the point of not allowing margins at all, which could seriously damage the paper futures market. But gold and silver bullion ownership is subject to no such threats.

The only threat to gold & silver bullion ownership is outright government seizure - something that also isn't outside of the realm of possibilities once world governments begin to implode from over-indebtedness.

For this reason, it is important to consider geographical diversification for your precious metals bullion holdings. The Dollar Vigilante released a Special Report on "How to Own Gold and Silver" this week to subscribers in which we detail how to own gold & silver bullion safely and securely (Subscribe today to receive this Special Report - 90 day 100% Money Back Guarantee on Subscriptions).

The government and financial establishment on November 9th made it clear that they are declaring war on the precious metals. They are about to find out that this time they are not up against one or two brothers, but the brotherhood of all of humanity who is turning its back on this failed centrally planned financial system and returning to an honest, free-market money.

 


 

Jeff Berwick

Author: Jeff Berwick

Jeff Berwick
Chief Editor
The Dollar Vigilante

Jeff Berwick

Anarcho-Capitalist. Libertarian. Freedom fighter against mankind's two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world's freedom, investment and gold conferences as well as regularly in the media including CNBC, CNN and Fox Business.

Jeff's background in the financial markets dates back to his founding of Canada's largest financial website, Stockhouse.com, in 1994. In the late '90s the company expanded worldwide into 8 different countries and had 250 employees and a market capitalization of $240 million USD at the peak of the "tech bubble". To this day more than a million investors use Stockhouse.com for investment information every month.

Jeff was the CEO from 1994 until 2002 when he sold the company and still continued on as a director afterwards until 2007. Afterwards, Berwick went forth to live on and travel the world by sailboat but after one year of sailing his boat sank in a storm off the coast of El Salvador. After being saved clinging to his surfboard with nothing but a pair of surfing shorts left of all his material possessions he decided to "live nowhere" and travel the world as spontaneously as possible with one overarching goal: See and understand the world with his own eyes, not through the lens of the media.

He went on to visit nearly 100 countries over four years and did and saw things that no education could ever teach. He met and spoke with a plethora of amazing people, from self-made billionaires to some of the brightest minds in finance - as well as entrepreneurs from a broad range of backgrounds and locations from tech companies in southern China to resource developers in Mongolia, Thailand, Russia and Chile. He also read everything he could find on how the world really works... politically and financially. A pursuit he continues to this day.

He expatriated, long ago from his country of birth, Canada, and considers himself a citizen of the world. He has lived in numerous locales since including Los Angeles, Hong Kong, Bangkok and currently lives in Acapulco, Mexico and is building a home in Cafayate, Argentina. In essence, everything he writes about here for TDV he has done or is doing.

As well, during his travels, both real and virtual (through the internet), he met some amazing people who have a similar shared vision of what is currently going on in the world and enticed them to come aboard TDV and provide their own brand of analysis.

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