As silver prices continue to crash, the New York Commodity Exchange, in an emergency session, tonight reduced the amount of money investors must put up to hold future contracts in the metal.
The action was apparently taken to ease the pressure on financially strapped commodity brokers whose customers are having trouble coming up with the money to add to their accounts as the metal plummets in value.
A 5,000 ounce silver futures contract fell $1.00 an ounce today -- the most it can fall on any one day -- while the cash price, which is unrestricted, dropped $4.40 an ounce to $15.80. Two months ago, the price of silver was $50 an ounce.
The Commodity Exchange action came amid rumors that several major commodities firms were flirting with bankruptcy and could not meet their so called "margin" calls at the Comex because customers were not depositing sufficient funds to cover their losses.
A Comex spokesman denied "unequivocally" that any firm had failed to meet its daily margin requirements.
A central actor in the silver drama, Texas billionaire Nelson Bunker Hunt, announced today in Paris that he and four other major silver owners plan to sell bonds that are backed by silver.
Hunt is reputed to be a major buyer of silver and many knowledgeable commodities traders say he is one of the major factors behind the sharp increases in silver prices -- from $6 an ounce in late 1977 to the $50 peak two months ago.
Sources here and in Chicago said the Hunt announcement probably reflects the need of these silver owners to come up with cash to meet margin calls at their brokers and to finance the cost of carrying their silver holdings.
There are two sides to a future contract. One side promises to buy a commodity at a certain price and date, while the other promises to sell that commodity at a certain price and date. When the price rises, the buyers make money. When it falls, the sellers make money.
Investors on each side of the contract must put up a specified sum of money, called the margin. If the value of their contract declines, they must deposit funds with their broker to bring their margin back to the specified level.
The Comex tonight sharply reduced those margins: by $5,000 a contract for persons owning between one and 100 contracts, and by as much as $20,000 a contract for persons owning more than 250 contracts.