In just 2 days’ time the Hong Kong Mercantile exchange opens its long anticipated silver futures and options trading this Friday 22nd July. And although the contracts start from an easily accessible and mere 1000 ounces, this is anything but a small matter in the moulding of new markets.
As of this Friday current traders are expected to see new demand from Asian buyers as the much coveted commodity by smart investors becomes accessible to a vast and astute Chinese market. The very design of this exchange is looking to tap into the increasing demand for silver as smaller contracts are made available for the silver hungry investors. But in addition to 1000 ounce contracts the HKMEx will also be trading an extended 15 hours a day, Monday to Friday, with physical delivery in Hong Kong.
“The new contract will enable buyers and sellers in China to trade effectively with their counterparts across the world, while at the same time, allowing investors to gain exposure to silver price movements and broaden their investment portfolio,” said HKMEx president Albert Helmig.
Many western investors also look forward to this new exchange as the sour sting of the May 2011 is still bitter in investor’s memories. This pain was in the form of several margin hikes by the CME which saw nearly 90% increase in margin requirements over a 10 day period. Whether justified or excessive it is hard to fathom the mind of the CME group as shortly after they still refused to lower margin requirements even after the 30% drop over the 5 day period. Let’s hope the new exchange will sooth those pains.
Whatever past motivations, the new Asian run exchange will spell the end to the CME monopoly, some investors predict an end to excessive margin hikes. Time will tell if the HKMEx will make the same errors of over leveraging their short position in silver, but in the meantime the new exchange can only be seen as good news for longs. However if you are not a large trader it is safer to stay with physical. That way when the crowd really wakes up to the US and European debt crisis you know you will have what you paid for.
Next stop August 2nd let the saga continue.
Richard Valentine 20/07/2010