(Kitco News) – The CME’s announcement of a second margin hike on precious metals futures in three days has sent shockwaves through the markets on the final day of trading in 2025, with experts wondering if this signals the end of the multi-year precious metals bull market, while some retail traders see it as just the latest example of the institutional players keeping them down.
Kevin Grady, president of Phoenix Futures and Options, believes it’s neither.
In a Wednesday interview with markets in the midst of their last hours of trading for the year, Grady told Kitco News that to understand the CME’s move, you need to understand who’s actually buying and selling – and who isn’t – and the purpose of the futures markets themselves.
“It seems to me the market is in the hands of speculators,” he said. “It's a culmination of things: a lot of people are on holiday, a lot of senior traders are off the desks. I think that the CME is just trying to keep an orderly flow in the market.”
“When you see silver having $5, $6, $7 [intraday] moves, that is not investors,” he added. “Right now, they're just trying to preserve the integrity of the market.”
Grady said that while the headlines will focus on the exchanges, the Futures Commission Merchants (FCM) – and the institutions that rely on them – are the ones at greatest risk in this environment.
“When you have a $7 move in silver, think about, in monetary terms, what that means,” he said. “Even the clearing houses, they're internally raising their margins. You're looking at the CME side, but on the FCM side, those are the ones that are clearing the customers who are trading. The StoneX’s and the Interactive Brokers. Those guys are all raising their margins internally for their clients. They don't want them going in and blowing out or something like that, just saying, ‘Hey, it's like a video game.’”
“They don't want any issues coming from this, blowouts and stuff like that,” he said. “These are obviously some insane moves.”
Grady said these are challenging times for the exchanges. “Everybody's going into these event markets and things like that, which seems like it's gambling,” he said. “But what are the markets there for? It's not really there for people to go in and just play it like a meme stock, and I think that's what's happened. I think silver became a meme stock, along with platinum and palladium. People want to go into those markets and be able to hedge in those markets, things like that. That's the reason why they have futures markets. They're trying to preserve the integrity of those markets.”
Grady said holidays and other periods of low liquidity are typically when speculators pour in and run away with markets.
“I don't think it's a coincidence that a lot of these moves are happening on holiday week,” he said. “If you look historically, we've had crazy moves like this, I remember some of them on Easter weekend when a lot of people are running out of the office, 4th of July, things like that. I've seen some crazy moves. It's usually holidays, thinner schedule, people aren't really looking as much, and they feel they can move the market.”
He said the rise of algorithmic and automated trading has served to exacerbate these moves, as the bots will jump in and execute trades on purely technical triggers, trades that many experienced traders would have the human judgment to avoid.
“There are a lot of algorithms that are plugged in, so when they see a move coming, they trade the move,” he said. “And they're just trading the market as the orders are flying in.”
The combined effect of the speculators and the algorithms is enough to massively distort the futures markets for smaller commodities.
“I was looking last night, and you saw the platinum [futures] volumes were not far behind the S&P mini,” he said. “That's unheard of. The open interest in palladium, you look at who's really trading it, it's obviously not people that have it. You look at the open interest in [platinum futures], it's small. It's basically a one-month market. All the open interest is in that front month.”
Still, some traders point to the historical precedents of the exchanges raising their margin requirements as a signal that the bull market is nearing its end. Grady disagrees. He sees this as a short-term brake on some runaway futures contracts, but believes the broader rally is intact, because the drivers remain in place.
“We saw gold going up, and we saw why it was going up,” he said. “The market was in the strong hands and gold was going up because the central banks were buying it. The only central bank that was selling was Russia, and the only reason they were selling is to support their war efforts. But everybody else was buying, and that's not going down. So those are the buyers.”
Then on the sell side, the big sellers who used to come in to sell at scale and tamp down the metals rallies are no longer doing so.
“The miners aren't selling it,” he said. “The S&P is up 17% and the gold mining stocks are up 125%, 130%, and it's probably even more at year-end. But they're not going to be selling. Their shareholders told them, ‘If you start hedging, we [will sell the stock]. So they understand. All they do is hedge enough to keep production going, payrolls, things like that. They want the price appreciation, that's why people are buying their stock.”
“So we know who the buyers are, and those are legit, they're real,” Grady said. “And we know who the sellers are.”
Grady said this essential dynamic drove the price right up to $4,000, and once the media and the average investor finally took notice, the speculative stage began.
“I think the last $500 in gold was speculators,” he said. “I think people started diving in buying, even the GLD. But I think a lot of people started diving in and just saying, ‘Hey, this keeps going up, and this is great!’ And I think that attracted more speculators, and I think that's why you're seeing these wild, crazy moves.”
And the increase in margins doesn’t mean the bull market itself is wavering – but Grady is still pulling for a significant pullback. “I don't think this is the end of this move at all,” he said of the multi-year precious metals rally. “I would love to see gold get back down to $3,800 and test that support. Like I've always said, the best way to see if a market is strong is to sell it.”
Grady said part of the problem with the response to these new margin requirements is that retail traders don’t understand how and why these decisions are taken.
“When the CME raises margins, this is not a bunch of guys sitting around saying, ‘You know what? This is getting crazy. Maybe we should stop this.’ There's a control committee, and this is all based on programs. They look at volatility, they look at all these different factors, it goes into a computer, and they spit it out and say, ‘This is what's happening, we need to raise margins.’ And I think that's what they're trying to do. Just to rein that in.”
“When you see gold down $38, silver down $7, that's like a $350 gold move,” he added. “So you can tell that's the thinner market, and the speculators have taken control of the thinner market. That's exactly what's happened this week.”
Grady said this has nothing to do with limiting people's upside or screwing over the little guy when he finally gets his chance to make money. It's about preserving the role that the futures markets fulfill within the broader market, the real commodities that are needed around the world, all the businesses and supply chains that rely on them. He said that the CME and other players are trying to ensure that speculators can't just completely hijack the market during periods of thin trading and then blow themselves and others up as the positions become untenable.
“That's not what the futures markets are for,” he said. “There's places for them to gamble. Silver has become a meme stock with what happened this week, platinum, palladium as well.”
He said it’s easy to tell if the outsized volumes are coming from miners, manufacturers and institutions who are hedging their business operations to remain solvent – or speculators looking to make a quick buck – because the overall balance of the market doesn’t change even as daily volumes triple.
“Even on these big moves, this is just all speculation, because look at what happened at the end of the day in all these markets,” he said. “They're not adding on open positions. Open interest is not moving that much. They're just in and out. They're just trading back and forth.”
“When you throw in speculators coming in, trying to move the market when they can, and then you throw in the algorithms on top of that, onto thin markets, you're going to get swings like this.”
Grady said that it’s a near certainty that if the CME is raising their margins, the FCMs raised theirs even earlier.
"If the CME is charging $32,500, the exchanges are probably telling their retail clients, ‘Listen, if you want to trade silver, you have to have in there $40,000 at least, per contract. I don't know that number, but it would be higher [than the CME],” he said. “I came from the FCM side, and the FCMs are usually before the CME. The FCMs see it; they have their own risk parameters. The last thing they want is somebody to get blown out trading silver on a Christmas week.”
“It's not just the FCM itself,” he added. “There's a lot of customers who are clearing on the FCM. If the FCM goes, it's killing everybody. They're not going to let that go because some people want to go in and just try to be cowboys trading silver.”
Grady said exchanges like the CME have an obligation to preserve the integrity of market, and the high-risk, high-frequency trading crowd is still welcome – as long as they can put up the margin.
“No one's telling these people they can't trade,” he said. “No one's locking them out, no one's saying it's liquidation only, none of that. All they're saying is, ‘If you want to play in this market appropriately, this is the margin – and it's set by a computer – this is the margin you need to play in this market. Put the money up, because you could lose it.’”
“No FCM is going to go on the hook and get blown out because they're allowing meme traders to come in and trade silver.”
