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Silver Plunges 10.5% as Margin-Hike Bites

Commodities / Gold and Silver 2011 May 03, 2011 - 12:13 PM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD hit new all-time Dollar highs at the AM London Fix on Tuesday, while silver traded near a two-week low, world stock markets slipped, and commodity prices fell hard.

An early rise in global equities faded as the Reserve Bank of India today hiked its key interest rate and Euozone factory input-price inflation showed a surprise rise.


Gold-up-silver-down has occured on fewer than 14% of all trading days since 1968, with two consecutive days happending 125 times.
 
Three consecutive days of such divergence has happened only once in the last 43 years of the London Fix, back in May 2003.

"Bin Laden death saps 'safe haven' appeal from precious metals," claimed a headline at the Toronto Globe & Mail's site today.

"With many [Western] markets closed yesterday...the lack of liquidity exacerbated profit-taking [and] gold prices saw the biggest fall in seven weeks," says Marc Ground at Standard Bank in London.

But "The drop triggered a frenzy of gold buying in India," says Shivom Seth, writing for MineWeb, as "the world's largest consumer of the precious metal is set to celebrate Akshaya Tritiya on May 6th."

One of the Hindu Vedic calendar's holiest days, Akshaya Tritiya is widely celebrated across southern India, where "Buying small pieces of gold or silver...is believed to bring success and wealth."

Indian investors "were [also] betting on growing demand for the yellow metal," MineWeb quotes one Mumbai analyst, Omkar Agnihotri.

The US Dollar today extended Monday's rally, helping crude oil lose well over 1%.

The interest rate offered to investors by 12-month US Treasury bills fell to new record lows as debt prices rose.

From last Thursday's London Fixes – the final wholesale "benchmarking" before the UK's four-day Bank Holiday weekend – the price of gold today rose 0.7%, adding a little over $10 per ounce to a new record high of $1546.60.

Silver, in contrast, stood 10.5% lower on Tuesday morning, down more than $5 per ounce to a two-week low of $43.61, ahead of the sharply higher margin payments required of leveraged players by the US Comex exchange from today.

Raised for the third time in 1 week to $16,200, the margin requirement on 5,000-ounce silver futures has almost quadrupled from this time a year ago.

"The underlying facts supporting gold are still intact," says Philip Futures analyst Ong Yi Ling in Singapore, "such as the ultra-loose monetary policy of the US Federal Reserve."

"The normal negative correlation of gold vs. the Dollar is back...helping this overall firmer trend," notes Phil Smith in Beijing for Reuters Technical.

"Interesting to see how turnover [in gold futures] is coming down...A rising market with falling volume is generally not a good signal."

"During the last Federal shutdown, between Nov '95 and Jan '96," notes the commodities team at French investment bank and London bullion dealer Natixis – just as the US Treasury the Treasury said its agreed debt ceiling won't be reached until Aug. 3rd – "the price of gold rallied 8%.

"With the Dollar's effective exchange rate currently standing at its weakest level since at least 1990 amid concerns over US monetary and fiscal conditions, it is no surprise that gold prices are pushing up to new highs."

Speaking to the European parliament in Brussels on Monday, "The economic consequences of high-level indebtedness now would become more severe if rates were to rise," said UK central bank chief Mervyn King.

"It is the main reason why interest rates are so low."

Monday's spike in wholesale gold bullion prices at the start of Asian trade saw the metal touch new record highs for US, British and Canadian investors, plus a new 2011 high for both Eurozone and Swiss investors looking to buy gold.

Silver fell hard at the very same moment, however, losing almost 9% of its Dollar-price inside an hour of Asian traders getting chance to respond to last Thursday's Comex margin decision.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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