All my previous prices expectations for silver did not account for margin hikes by the exchanges. What are these margin hikes? Various commodities exchanges set a margin on commodities futures e.g. oil, silver, etc. While the CME claims that they adjust these margin rates to tame the volatility, in fact, it is their actions that cause volatility. Fearing a default at the exchange, regulators vowed to use any measure necessary to tame prices and speculation.
In the last week of April 2011 until today May 5th, there has been a total of “coordinated” 9 margin hikes by the various exchanges. In December 2010, it took only one margin hike to send silver in a pull-back that lasted nearly a month long. But with the silver bull market in a later phase, a total of 9 hikes were needed to tame prices and knock out speculators.
The point is that all of our prices expectations for any commodity whether silver, oil, or gold must take into account these unpredictable margin hikes. Silver suffers from the winner’s curse, singled out for these hikes of all commodities. But the experienced investor will be able to create mind-numbing profits from these regulators. How?
Do not go all in, no matter how bullish the market appears. Because the more bullish a commodity becomes the more likely it is to get a margin hike. Make sure we side-lined enough cash to buy on the dips. Dollar-cost averaging is very important in such a volatile market. Remember: volatility in an long-term uptrend (bull) market is NOT a bad thing. And if we have to use leverage, do so sparingly and wisely. While these rules seem simple enough, they’re harder to implement in practice, with our human emotions firing on all cylinders.