(Kitco News) -- The Chicago Mercantile Exchange (CME) decision's to raise maintenance silver margins from $5,000 to $6,500, is the reasoning behind the selloff in the precious metals Tuesday afternoon, said George Gero, Vice-President, Global Futures, RBC Capital Markets.

CME Group, the operator of the New York Mercantile Exchange and Commodity Exchange (COMEX), on which silver futures contracts are traded, released a statement to clearing member firms and others Tuesday raising the amount of margin needed to trade silver futures contracts, “as per the normal review of market volatility to ensure adequate collateral coverage.”

Speculation has arisen that this news is responsible for this afternoon’s significant negative reversal in the price of silver.

“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 Gero.

It is the same story for gold, platinum and palladium he said.

“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.”  

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

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

He 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 of Kitco News dcambone@kitco.com

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