If the recent plunge in silver prices has left you scratching your head, you’re not alone. After approaching $50 per ounce on April 28, silver prices have gone into free-fall. In just one week, prices have dropped by nearly 30%—defying the predictions of many intelligent observers who said that in the face of limited supply and increasing demand, silver was on track to hit $100. But as The New York Times explains, the silver bubble didn’t just spontaneously combust:
“On April 25, half a dozen officials from the CME Group, which runs many of the nation’s commodities exchanges, met via videophone to discuss the eye-popping rise in the price of silver. . . . Worried about the speculative run-up and the increased volatility of the silver market, the officials concluded that it was time to raise the amount of money that buyers and sellers had to put down as collateral to guarantee their trades. The first increase in so-called margin requirements took hold the next day, effectively making it more expensive for speculators and other kinds of traders to play in the market.”
It’s not uncommon for commodities exchanges to raise margins when prices begin to climb. And if the desired effect is not achieved the first time, margins can be raised again (and again). In the case of silver, the CME Group hiked margins four more times. By end of day today, the margin on each new futures contract will be a total of 84% higher than it was before the increases were put into place. Prices, meanwhile, have dropped to $37.