Silver is one of the most popular trading instruments in Forex trading. If you look at the history of silver prices for the last couple of years you will see that the price for silver is constantly grows, despite the short-term corrective movement. There are few reasons for the silver value growth. Among them is the increase in consumption of silver, and the desire of investors to diversify their investment portfolio by using silver as an additional financial instrument.
As well as silver, gold is also rising in price and is also very attractive investment in Forex trading. The growth of gold was explosive because of the numerous aid programs and a start of printing money machine of USA. Therefore, the USD weakened during the last couple of years big investors started to invest their funds in other instruments, including the precious metals and other commodities.
Despite all the measures to strengthen the USD, investors’ confidence in USD currency stays ambiguous. Therefore, today Forex traders are using more stable instruments for their investments like gold, silver, JPY, etc.
Silver is a very specific market, and its peculiarity is in a relatively small volume. Because of this silver market is vulnerable in the sense that a large investor can “lay hands on the market,” dictating the price of silver. It has already happened few decades ago. Big investor brothers Hunt started buying silver. Their capital was estimated at 6 billion USD. By the end of 1973 brothers Hunt bought contracts for the purchase of silver worth 35 million troy ounces, then the value of this precious metal has risen to 2.90 USD and continued to rise.
In less than 2 months silver price reached 6.70 USD, showing a fantastic rate of growth and profitability. For 10 years the brothers Hunt purchased about 150 million ounces of silver, which is about 5000 tons. This figure corresponds to 50% of USA stocks and 15% of the world’s one. By January 1980 the value of silver reached a historical maximum – 52.50 USD per ounce. Due to the urgent intervention of the Commission on Trade (CFTC) and the Chicago Mercantile Exchange, that decided to impose restrictions on the amount of trading positions and to increase margin requirements, it completely changed the market. These changes led traders to sell silver in order to satisfy margin requirements. As a result, silver prices fell sharply – from 50.36 to 30.25 USD during 3 days, after which the silver has committed to roll back to a more reliable minimum within few days to 33.10 USD. Two months later the value of silver has returned to a level of $ 20 or even less.
A similar situation could be observed at the beginning of 2011. The reaction of the regulators was similar: after the introduction of the new margin requirements for silver its price dropped significantly, as both small traders and big investors had to fix their trading positions accordingly. This is a standard measure that is needed in order to stabilize the market during the periods of strong volatility. The aim of such measures is to protect market’s participants from additional risks.
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