Silver investors dump bets after exchange increases margins 84pc

NEW YORK, May 5 (Bloomberg): The biggest slump for silver since 1983 may not be over as the Comex exchange in New York makes it 84 per cent more expensive for speculators to trade the metal, triggering an exit by investors. The minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $21,600 per contract after May 9, CME Group Ltd, Comex's owner, said Wednesday. That's up from $11,745 two weeks ago. Open interest in futures has tumbled about 15 per cent since the exchange began raising margin requirements on April 25. Prices may drop another 14 per cent to $34 an ounce by the end of next week. Silver has more than doubled in the past year as record-low US borrowing costs and a slumping dollar prompted investors to buy precious metals as alternative assets. "You're talking about a very volatile market, a very significant run up in a very short period of time," said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio in San Francisco. "It went too high too fast, and exacerbating it on the downside is the increased margin requirements." As of April 29, the metal had soared 57 per cent in 2011, the most among the 19 commodities tracked by the Thomson Reuters CRB Index. In the past three sessions, silver plunged 19 per cent, the most since February 1983. The slump trimmed this year's gain to 27 per cent, making it the second-best performing raw material, trailing gasoline's 35 per cent jump.