Tuesday, May 3, 2011

Silver Slumps for Third Day as Increased Margins Drive Selling


By Kim Kyoungwha

(Bloomberg) -- Silver futures fell for a third day, set for the worst run since January, as an increase in margin requirements on the Comex drove investors away. Gold may also extend its drop into a third day.

Silver for July delivery in New York slumped as much as 5 percent to $40.465 per ounce, after losing 7.6 percent yesterday and 5.2 percent on May 2. The metal was at $41.215 at 8:27 a.m. in Singapore, taking losses over the three days to 15 percent. Immediate-delivery gold was little changed at $1,535.32 an ounce after two days of decline.

CME Group Ltd., Comex’s owner, said this week that the minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $16,200 per contract at the close of business yesterday from $14,513. A year ago, the margin was $4,250.

“Silver is often the lead indicator for changes in trends, or at least for corrections,” David Wilson, an analyst at Societe Generale SA, wrote in a note. After futures rallied to a record $50.35 an ounce in January 1980, prices dropped 78 percent in four months.

From the start of this year to the end of April, silver futures rallied 57 percent, peaking at $49.845 on April 25, and the metal was the best performer in that period among the 24 raw materials tracked by the Standard & Poor’s GSCI Index.

Faster Inflation

Demand for silver and gold has been supported by growing prospects for currency debasement and accelerating inflation. The dollar fell 7.5 percent against a basket of six major currencies this year, sliding to its lowest level since 2008.

Silver assets held in exchange traded products fell 1.1 percent to 15,169.80 metric tons yesterday, while gold holdings stood little changed at 2,069.78 tons, according to data compiled by Bloomberg.

Gold for June delivery in New York declined as much as 0.5 percent to $1,532.40 an ounce, after losing 1.1 percent yesterday. Futures reached a record $1,577.40 on May 2.

Gold was “dragged lower by another sharp drop in silver,” Mark Pervan, head of commodity research at ANZ Banking Group Ltd., wrote in a note. “Although silver is a smaller market and prone to choppy trading, it still had a bearish impact.”

Palladium for immediate delivery was little changed at $774.50 an ounce, while platinum fell 0.2 percent to $1,851.25 an ounce.

--Editors: Jake Lloyd-Smith, James Poole

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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