CME Group once again increased trading margins, precious metals collectively plummeted, and silver fell more than 5%

# Source: Wall Street Insights

## By Zhao Ying

In a December 30 announcement, the Chicago Mercantile Exchange (CME) stated that margin requirements for gold, silver, platinum and palladium contracts would be raised after the close of trading on Wednesday. The decision was based on an assessment of "market volatility to ensure adequate collateral coverage". This marked the second such move by the exchange within a week, following an initial margin hike that took effect on Monday. The latest increase means traders are required to post more collateral when trading precious metal futures, which will directly restrict the use of leverage in the market. This regulatory action has triggered investor vigilance, with growing concerns over whether the ongoing rally in precious metals can be sustained.

The CME raised margin requirements for precious metal futures for the second time this week, in an attempt to cool down the recently surging precious metals market. Spot silver responded with a sharp decline on Wednesday, approaching the $72 per ounce mark with an intraday drop of over 5%. Other precious metals also slid: spot palladium plunged more than 7% to $1,497.75 per ounce, while spot platinum tumbled over 7% to $2,038.55 per ounce.

In its December 30 announcement, the CME noted that margin requirements for gold, silver, platinum and palladium contracts would be increased after Wednesday's closing bell. The decision was grounded in an evaluation of "market volatility to guarantee sufficient collateral coverage". It represented the exchange's second intervention in seven days, building on the initial margin adjustment that came into force on Monday.

This margin hike mandates traders to put up additional collateral for precious metal futures transactions, directly curbing the application of leverage in the market. The regulatory move has heightened investor wariness, sparking doubts about the sustainability of the current precious metals rally.

Analysts pointed out that despite the existence of long-term bullish factors, the rapid short-term price surge has clearly overpriced market expectations, with premature capital inflows fueling excessive speculative sentiment.

### Exchanges Take Intensive Actions to Control Risks

The CME has adjusted margin requirements multiple times this month. On December 12, the exchange first raised silver margin requirements by 10%. Then, after the close on December 29, it once again comprehensively increased performance margins for futures contracts including gold, silver and lithium.

These measures reflect the exchange's concerns over the extreme volatility in the precious metals market this week. Silver price fluctuations were particularly pronounced: futures prices soared to an all-time high above $82 per ounce in early trading on Monday, before experiencing a sharp pullback, with price swings reaching double-digit levels.

Domestic regulators have also taken coordinated actions. On December 26, the Shanghai Futures Exchange (SHFE) adjusted the daily price limit for gold and silver futures contracts to 15%, and raised corresponding trading margin ratios. This marked the third round of risk control measures rolled out by SHFE targeting silver futures this month, following margin hikes on December 10 and restrictions on intraday trading positions as well as adjustments to transaction fees on December 22.

### Precious Metals Frenzy Triggers Widespread Alert

Silver prices hit an all-time high above $82 per ounce on Monday, but the ongoing "metals rally" is not confined to silver alone. Gold has broken through the $4,550 mark, copper prices have followed Shanghai copper futures to record highs, and platinum and palladium have also posted double-digit gains. The market is turning to precious metals as a hedge against the "AI bubble" and currency devaluation risks. However, historical cases of silver crashes have shown that when exchanges start to restrict leverage, it often signals that the market rally is nearing its end.

As mentioned in previous articles by Wall Street Insights, the current silver price trend is remarkably similar to the lead-up to the 2011 silver bubble burst. Back then, silver prices skyrocketed by 500% from $1.50 per ounce in 1973 to nearly $50 per ounce in 1980, as the brothers hoarded over 200 million ounces of silver to hedge against inflation and used leverage to drive up prices. In response, the CME introduced the strict "Silver Rule 7" to limit leverage, while then Federal Reserve Chairman Paul Volcker raised interest rates to 20%. Hit by both margin calls and a liquidity crunch, the Hunt brothers were forced to liquidate their positions and declare bankruptcy, sending silver prices plummeting to $10 per ounce.

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