Silver ETF volume explodes — Sprott Makes a Complete Fool of Himself — Why Margins Were Hiked

Here's another confirmation that speculators are still way too thirsty and greedy:

(Yahoo Finance) — Activity in the largest exchange traded fund for silver has spiked the past two weeks along with volatility as traders look for alternate ways to play the precious metal following a series of futures margin hikes.

Daily trading volume in the $13 billion iShares Silver Trust (NYSEArca:SLV) has been running nearly ten times the average seen over the past six to nine months. Last Thursday, nearly 300 million shares of the silver ETF traded, a record.

Amazingly, a well known hedge fund manager, Eric Sprott, makes a complete fool of himself by blaming evil short sellers, and coming up with conspiracy theories... Yes, he still believes, deeply. But he will need more than believing to see prices recover. A few weeks ago, he was telling the world that we were running out of silver. Another reason to be a complete fool...  Not to mention yet another $200/oz price forecast...

(WSJ Blog) — After silver suffered its worst one-week drubbing in three decades, one of the biggest silver bulls gave a pep talk to hundreds of followers on Monday.
[...]
As for the recent plunge, Mr. Sprott pointed at speculative short-sellers as the prime culprit, eliciting applause from the crowd of nervous believers. Silver skidded 27% last week, but poor man’s gold leaped 5.2% today, underscoring its rodeo-like allure.

Mr. Sprott, a big advocate for precious metals, trotted out familiar themes to back up his points: the Federal Reserve’s loose monetary policies, relentless bank failures and the fragile housing market.

Instead of U.S. dollars and other currencies, which are “questionable currencies backed with nothing,” people should buy precious metals, he said in a speech at the Hard Assets Investment Conference at the New York Marriott.
[...]
“If this was not the script for somebody wanting silver down, I don’t know what is,” he said, stressing his short-seller meme and alluding to the big moves on light volume at the start of the week. Trading activities in silver’s futures market and exchange-traded funds have well exceeded the amount of silver in the physical market, he added.

Mr. Sprott also addressed one of the most contentious questions between bulls and bears in the silver market: how much above-ground silver is there? Many bulls think all the silver being produced has been consumed and disappeared. Therefore, silver is facing a shortage.
[...]
“Why shouldn’t silver appreciate more than gold if there’s less silver around,” asked someone in the audience.

“Do you want to come up to the stage?” Mr. Sprott quipped. “If gold goes to $3,200, silver should be at $200.”

With gold at $1500 and silver at $37, that would mean a bit more than a double for gold and more than a quintuple for silver.

Oh, and just to debunk another myth spread by the silver bugs and conspiracy theorists, no margin hikes were not made to crash silver, and did not cause the crash. Indeed, there's been just another margin hike today, yet, Silver Prices Higher After Latest COMEX Margin Increase.

So why were margins hiked? My good friend Mike, the Sovereign Speculator provided the answer a few days ago:

Since the futures opened on Sunday, silver has fallen $13. For a standard 5,000 ounce contract this is $65,000, more than three times the COMEX margin. Today alone silver is off $15,000 per contract. It is just plain silly to claim a conspiracy against silver, and even sillier to claim that margins were hiked for nefarious reasons. Margin had to be hiked to keep up with the price of silver and its volatility, to protect the exchanges and winning traders (and to protect losers from themselves).