Silver dropped more than 2% on Tuesday, retreating from a near eight-year peak it hit in the previous session, as a margin hike by the Chicago Mercantile Exchange prompted investors to lock in profits.
Spot silver slipped 1.6% to $28.52 an ounce by 0535 GMT, after jumping 7.3% to hit its highest since February 2013 at $30.03 on Monday, as retail investors piled into the market following calls on social media to push prices up.
CME Group raised Comex 5000 Silver Futures maintenance margins by 17.9% on Monday. CME’s steps to increase margins on silver trading and discourage the highly speculative behaviour in the market has prompted some profit taking, said IG Market analyst Kyle Rodda.
Margins are deposits mandated by exchanges to mitigate default risks while investors trade in futures markets. They are typically raised at times of price volatility.
The retail frenzy that started last week has left global dealers scrambling for bars and coins to meet demand, while also pushing the U.S. Commodities regulator to monitor the market.
The fact that silver moved up without similar spikes in other precious and industrial metals “suggests that it’s an outlier of sorts and therefore vulnerable to come down quite strongly”, said ED&F Man Capital Markets analyst Edward Meir, but added it hasn’t topped out just yet.
Prices also came under pressure after some Reddit members pleaded individual traders to avoid the trade as there are no holders of massive silver short positions.
Analysts expect prices to remain volatile in the near term. “It’s just wild market behaviour with a low level of predictability,” Rodda said.
Spot gold dipped 0.2% to $1,855.76 per ounce. U.S. gold futures shed 0.4% to $1,856.90. Platinum declined 1.5% at $1,110.77, while palladium added 0.3% to $2,253.03.