Has a silver bubble gone bust?

Nancy Marshall-Genzer May 4, 2011
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Has a silver bubble gone bust?

Nancy Marshall-Genzer May 4, 2011
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JEREMY HOBSON: The price of silver has tumbled more than 12 percent in the past two days after a big run-up in the last couple of years. And it’s not because the precious metal has lost its shine.

Marketplace’s Nancy Marshall Genzer joins us now, live with more on the silver story. Good morning.

NANCY MARSHALL GENZER: Good morning Jeremy.

HOBSON: Well first of all, tell us why the price of silver has dropped so much?

GENZER: Well, silver traders have to borrow money to back the trades they’re making. They leave that money with a broker and a few days ago, the exchanges started raising the amount of money that has to be set aside. Translating that Jeremy, in trader speak, that’s called the “margin requirement.” In fact, In fact, one exchange raised margin requirements three times in just a week. And some traders just couldn’t put up the cash, so they had to sell. Other traders decided to sell while the price was high.

HOBSON: Well I’m sure some people are unhappy if they’re losing money on this deal. But is anyone happy that the exchanges have stepped in to burst what some have been calling a “silver bubble?”

GENZER: Some people are. They say the exchanges are helping to stabilize the silver market. The margin requirements are one way the exchanges have to cool off the market.

I talked with a commodities analyst in London about this — Jono Remington Hobbs of FastMarkets.com. He told me he wasn’t surprised that people were selling. He says he expects the trading of silver to be rocky.

JONO REMINGTON HOBBS: With prices running up so high in such a short period of time we’re always expecting to see profit taking to come from silver. It’s a very volatile metal anyway.

And some people are still holding onto silver Jeremy. They see it as a hedge against inflation.

HOBSON: Marketplace’s Nancy Marshall Genzer in Washington, thanks Nancy.

GENZER: You’re welcome.

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