When silver dropped precipitously off of its near $50 high at the beginning of the month some people saw it as the bursting of a bubble. Other more constrained analysts saw it as a long overdue correction and or reaction to a reversal in the dollar and would wait for more information before giving the move more significance.

Yet there were others who saw the sharp rise in margin requirements by the CME Group as proof of a conspiracy. Margins did go up sharply but so had price and volatility making silver more risky and thus requiring more money to back positions.

I have recently spent  quite a bit of time going through comment letters to the Commodity Futures Trading Commission (CFTC) regarding it proposed position limits and many are from folks wanting stronger limits on silver because they feel the shiny metal is being manipulated. In a twist they think price is being held down.

That is in contrast to the conspiracy theorists—some in Congress—that believe speculators are pushing commodity prices higher. Certain Congressmen have suggested and even drafter legislation, that would direct exchanges to use margin not for the purpose of managing risk but to regulate price.

There seems to be a lack of understanding of what the purpose of futures margin or performance bonds is. Here is a good description by Howard Simons.

Everyone in Congress or who purports to give an opinion on margin requirements should look at this first.