Silver Price Continues To Suffer The Effects Of The Flash Crash

London (Aug 7)  When it comes to the world of precious metals, silver tends to be the leader when it comes to price variance. The reason that silver attracts lots of speculative trading activity is the same reason that many call the precious metal “poor man’s gold.” Silver is a lot cheaper than gold on a per ounce basis. In fact, over the past four decades, it took an average of 55 ounces of silver to buy just one ounce of gold. Most recently, the cost of gold has increased to over 76 ounces of silver. Therefore, many more market participants can afford to buy silver when compared to gold. Moreover, daily trading ranges in silver tend to be much wider than gold on a percentage basis which makes the metal more attractive to risk seekers in the markets. At $16.25 per ounce, a contract of COMEX silver has a total value of $81,250 while a contract of COMEX gold is worth $126,500 at $1265 per ounce. The initial margin requirement for a silver contract, established by the exchange, is currently $6,380 or 7.85% of contract value, while the initial margin for the gold future contract $6,600 or 5.22%. The higher margin for silver reflects the higher price volatility and is the reason that so many speculators and investors flock to the market. Higher price variance translates to more opportunity to make or lose money in the market.

July 6 did lots of damage to the silver futures market

The flash crash that occurred during the Asian time zone on the evening of July 6 damaged the silver market. The price of silver dropped to lows of $15.54 on that night which showed up on the charts as price action on the following day, July 7. Forty to fifty million ounces of silver hit the market during the illiquid Asian trading hours, and the precious metal continued to fall reaching a low of $15.145 on Monday, July 10.

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