Silver Plummets, and Gold Sells off Sharply Following the CME Margin HikeThe precious metal complex (gold, silver, platinum, and palladium) traded under pressure, with all precious metal futures contracts closing sharply lower on the day.
Silver futures sustained the largest drawdown, with the most active March contract losing $2.70, a decline of 9.17%, and is currently fixed at $26.71. This action followed the Chicago Mercantile Exchange (CME) decision to raise the margin requirements needed to trade a single contract of Comex silver by 18%. The former margin requirement of 14,000 per 5000 ounces per Comex contract to $16,500.
Given the extreme volatility that has caused the precious metals to trade dramatically higher over the last three trading days, the CME Group’s move to raise the margin requirements of silver futures is a normal response to increased volatility. It is the exchange that guarantees the performance of any trade placed. The exchange ensures that winners will get paid and facilitates this by debiting those traders’ accounts incurring losses.
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Silver’s dramatic decline occurred after a three-day rally in silver futures took pricing from a low of $24.92 on Thursday, January 28, to a high yesterday above $30 per ounce with a settlement price above $29 per ounce yesterday.
Did Silvers decline resulting in significant technical chart damage?
Based upon our technical studies, silver did not incur any major chart damage. Although today’s 9% decline was severe, silver remains above all three major moving averages; the 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 the middle of March 2020 when silver prices traded below $12 per ounce, up until the highs of August 2020 when silver unsuccessfully flirted with $30 per ounce.
That same strong resistance level that was evident at $30 in August of last year continues to be a technical point of major resistance. The golden cross identified on January 21 between silvers 50- and 100-day moving average remains intact.
Concurrently the gap or price void that was created from the close on Friday last week. The dramatically higher price that occurred when the markets resumed trading in Australia Monday morning has been filled. Most market technicians believe that price voids or gaps have a high likelihood of being filled. When these gaps occur during a bullish rally, it is not unusual to see prices fall to backfill the gap.
Gold closes under its 200-day moving average.
However, on a technical basis, gold did sustain chart damage today as it declined 1.36% or $25.40, with the most active April 2021 Comex contract currently fixed at $1838.50. This puts current pricing below all of the three major moving averages (50,100, and 200-day). Today’s decline also took current pricing just below the 38.2% Fibonacci retracement, which occurs at $1843.30. The timeline for the data set used for the Fibonacci retracement is the same as we used for silver. It began when gold traded to a low of $1443 in mid-March of last year, up until the new all-time record high achieved in August 2020 when gold hit $2088 per ounce.
Although, on a technical basis, gold prices have sustained a major blow, the fundamentals for price support are still exceedingly strong. The Federal Reserve maintains an extremely accommodative monetary policy, including near-zero interest rates and quantitative easing. When coupled with the fiscal expenditures of $4 trillion last year and the current proposal by President Biden to initiate another round of stimulus, which will add an additional $1.9 trillion to the national debt, a case can be made for strong fundamental support of the precious metals complex including gold and silver pricing.
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Wishing you as always, good trading and good health,
Gary S. Wagner