-- Posted 10 November, 2010 | | Discuss This Article - Comments:

On November 9th the Chicago Mercantile Exchange said it will raise its silver futures trading margins by 30 percent to $6,500 an ounce from $5,000 an ounce effective November 10th setting off a rapid sell-off in the metal.  No other margin requirement on any other metals was changed.

According to Reuters, "Exchanges often raise margins to mitigate risks as price volatility increases."

But, where is the supposed volatility in Silver?  The chart below shows an incredibly orderly upward rise in silver.

In fact, the only volatility you can find on the silver contract in the last four months occurred in the moments after the CME announcement as this intraday chart from November 9th shows:

Clearly silver was targeted as having "gotten too high".  When was the last time margin requirements were raised on US Treasuries which are at all-time highs?

The financial authorities pulled the same chicanery in early 1980 when Nelson Bunker Hunt and Herbert Hunt had nearly cornered the market in silver. In 1979, the price of silver jumped from $6/oz to an all-time record high of $48.70/oz. The brothers were estimated to hold one third of the entire world supply of silver at the time.

But on January 7 1980, just like on November 9 2010, the exchange rules regarding leverage were changed, when Comex adopted 'Silver Rule 7' placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.

This Time It's Different - Rise of the Dollar Vigilante

There is a big difference between 1980 and 2010.  Today it isn't just two rich brothers who are moving out of US dollars and other fiat currencies it is the entire population of the world - and it will only increase from here as people like Ben Bernanke continue to push their currencies into hyperinflation via programs deftly named, "Quantitative Easing".

Just as bond vigilantes brought the near hyperinflation of the 1970s to an end by selling government debt, today it is "dollar vigilantes", 6 billion people around the world who are slowly awakening to the mugs game of fiat currencies and central banking and are casting their own vote to sell dollars in favor of real assets such as gold, silver, agriculture and energy.

The Hunt Brothers Great Mistake

The Hunt Brothers were vulnerable because they borrowed money, or went on margin, to buy much of the silver they purchased.

Dollar Vigilantes today would be wise to own their gold and silver bullion in real bullion form and not in paper form to avoid the same fate.  There is nothing stopping the CME from continuing to raise margins on gold and silver, even to the point of not allowing margins at all, which could seriously damage the paper futures market.  But gold and silver bullion ownership is subject to no such threats.

The only threat to gold & silver bullion ownership is outright government seizure - something that also isn't outside of the realm of possibilities once world governments begin to implode from over-indebtedness.

For this reason, it is important to consider geographical diversification for your precious metals bullion holdings.  The Dollar Vigilante released a Special Report on "How to Own Gold and Silver" this week to subscribers in which we detail how to own gold & silver bullion safely and securely (Subscribe today to receive this Special Report - 90 day 100% Money Back Guarantee on Subscriptions).

The government and financial establishment on November 9th made it clear that they are declaring war on the precious metals.  They are about to find out that this time they are not up against one or two brothers, but the brotherhood of all of humanity who is turning its back on this failed centrally planned financial system and returning to an honest, free-market money.

Jeff Berwick
Chief Editor
The Dollar Vigilante

The Dollar Vigilante is a free-market financial newsletter focused on covering all aspects of the ongoing financial collapse.  The newsletter has news, information and analysis on investments for safety and for profit during the collapse including investments in gold, silver, energy and agriculture commodities and publicly traded stocks.  As well, the newsletter covers other aspects including expatriation, both financially and physically and news and info on health, safety and other ways to survive the coming collapse of the US Dollar safely and comfortably.  You can sign up to receive our FREE monthly newsletter,  our Basic Newsletter ($15/month) or our Full Newsletter ($25/month) with specific stock recommendations and updates at our Subscriptions page on our website at DollarVigilante.com.

Copyright © 2010 Jeff Berwick