I've mentioned that I'm working on a post about the recent drop in gold and silver prices. Still in process - sorry. I'm trying to deconstruct what happened last week so that I can fortify my "tool box" of indicators regarding market price fluctuations.
One of the "flags" that could be an indicator of a sudden price drop has been hoisted.... for crude oil.
This flag is when the COMEX (Commodities Exchange) increases the amount of money that speculators must have on account (margin accounts) when they buy commodity futures.
Before silver prices dropped, the COMEX increased margin requirements 4 times in 8 days.... by a total of 84%. The oil margins look to have been raised around 25%. There are 33 pages of different kinds of oil futures you can buy, and I didn't take the time to do the math on all of them, but 25% seems to be the average increase.
These new margins go into effect after the close of business on Tuesday, May 10th (tomorrow).
Now, from what I understand, the holders of these margin accounts can either come up with the cash to meet the new margin requirements, or they can sell their contracts. This latter option results in the market being flooded with contracts, causing the prices to drop.
I'd expect there to be at least some "panic" selling tomorrow. If, like silver, the COMEX publishes additional margin account requirements in the days to come, we may see some serious drops in crude oil prices (and hopefully at the pump).
We'll see how this shakes out...
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