Silver Plunges, Flirts with 20% Bear Market Level
Commodities / Gold and Silver 2011 May 04, 2011 - 07:39 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD held tight as silver prices sank once again in London on Wednesday morning, sitting above last night's two-session low of $1528 per ounce while silver dropped to new 3-week lows, flirting with the technical definition of "bear market".
New data showed the Bank of Mexico buying 93 tonnes of gold bullion for its reserves in Feb. and March, the heaviest central-bank buying since India's 200-tonne purchase from the IMF in Oct. 2009.
Brent crude oil meantime stabilized at $122 per barrel, but broader commodity indices fell together with Asian and European stock markets.
Major-economy government bonds also fell – driving US Treasury yields higher from a 6-week low – as S&P called a UK rate rise "almost certain" over the next 3 months.
The European Central Bank "could be more hawkish" again tomorrow, reckons fixed-income strategist Patrick Jacq at BNP Paribas, perhaps flagging up another 0.25% rate-rise for June.
"A reversal of 20% or more, returning [silver prices] to levels in the mid-$30s, would not surprise us at all," says UBS metals strategist Edel Tully in London.
"We remain significantly more friendly to gold than to silver."
From last week's new 31-year and all-time record highs, silver today bottomed some 18.6% vs. the Dollar and Sterling respectively.
Priced in the Euro, silver bullion traded more than 20% below last Monday's high, meeting the technical definition of a bear market.
Commenting on Mexico buying gold, "There's an appetite now among emerging economies with large forex reserves to add to their gold reserves," the FT quotes Mitsubishi precious metals strategist Matthew Turner.
"Gold is seen as one way in which to diversify away from the Dollar- or Euro-denominated assets."
The Euro today traded back up to the 17-month high of $1.4880 first hit a week ago, as Portugal secured a €78 billion line of credit from its European Union partners.
Smaller than first proposed, the bail-out is still pending ratification by the Lisbon parliament after next month's general election.
New data meantime showed Eurozone retail sales shrinking unexpectedly in March. UK money-supply growth and new mortgage approvals both lagged analyst forecasts.
The Pound also rose vs. the Dollar, recovering one-third of Tuesday's 2¢ drop but failing to push the gold price in Sterling much below £930 an ounce – a new all-time high when first reached on Friday.
Doubling inside 6 months, however, "No asset in history has risen so sharply so rapidly [as silver prices] and retained most of its price appreciation," says New York's CPM Group metals consultancy.
"A sharp retracement [to $37 per ounce] seems more likely than not at this point."
"Others may choose to trade here and may enjoy the violent random nature of the [silver investment] market," says Dennis Gartman of the eponymous $5,000-per-year advisory letter, also quoted by the Wall Street Journal.
"We, as always, shall avoid it. Betting on the red in Vegas is far, far safer."
George Soros' flagship hedge fund has apparently quit its sizeable gold and silver positions, the Journal reports.
Previously controlling the 7th largest position in No.1 exchange-traded gold trust the SPDR Gold fund, manager of Soros' $28 billion portfolio Keith Anderson now sees a lower risk of deflation and thus a lower risk of government inflation in response, according to the newspaper.
Hedge fund manager John Paulson – whose funds hold the largest single position in the New York-listed gold ETF – yesterday confirmed his bullishness on gold, and told a group of investors that the metal's price could reach $4000 per ounce.
"Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter," says the WSJ.
By Adrian Ash
BullionVault.com
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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
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