(Updating earlier story with additional analyst comments, prices and details of CME action)

(Kitco News) -- A Chicago Mercantile Exchange (CME) decision to raise maintenance silver margins from $5,000 to $6,500 triggered a sell-off in the precious metals during after-hours trading late Tuesday, analysts said.

“The raise in the silver margins from $5,000 to $6,500, combined with the beginning of a big roll-over from the December to the March contract, makes some people think about taking profits and waiting until the coast cleared,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures.

Some traders opted to liquidate positions rather than put up the money for the increased margins, said Tom Pawlicki, analyst with MF Global. “Once the CME came in and raised the margins, that kind of deflated the enthusiasm,” he said.

The impact spilled over into other precious metals.

“The margins were only raised for silver – but under the (Standard Portfolio Analysis of Risk) or SPAN margining system that the CME uses, the possibility of other margin increases propped up,” Gero said.

In after-hours screen trading, December silver was 52.2 cents lower at $26.910 per ounce around 5 p.m. on the Comex division of the New York Mercantile Exchange. December gold fell $10.30 to $1,392.90, and January platinum was $6.90 lower at $1,764.20.

For the 5,000-ounce silver futures contract, the “maintenance” margin for ongoing positions was hiked to $6,500 from $5,000 for both speculators and hedge/members, according to the CME notice sent to members. The new margins will be effective as of the close of business on Wednesday, CME said.

For speculators, the margin for new “initial” positions was hiked to $8,775 from $6,750. For hedge/members, the initial margin increased from $5,000 to $6,500.

So how will the Asian market respond? Gero is waiting to see.  Overall, however, Gero said there is no need to panic and the volatility is normal. 

“While all this was going, the U.S. dollar got better – so I expect this temporary volatility all through the month of November,” he said,

Gero noted that in November, “we also have option expiration for the metals. So the November expiration is more significant than most expirations for December futures.”

By Daniela Cambone dcambone@kitco.com & Allen Sykora asykora@kitco.com of Kitco News

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