Silver hit a 2-1/2 year low on Monday, led by fund liquidation in Asian trade, while gold was up slightly, reversing from seven days of losses based on speculation the US Federal Reserve may rein in its stimulus programme. Investors have been dumping gold and silver, which are down 20 percent and 30 percent respectively this year, while stocks and the dollar have risen on an improving global economic outlook.
Gold-backed exchange-traded funds have seen massive outflows in recent months, although silver holdings have held up better until now. Silver was down 1.5 percent at $21.90 an ounce by 1451 GMT, after touching $20.84, its lowest since September 2010. COMEX silver futures were down 3 percent to $21.69 an ounce, having earlier dropped as much as 9 percent.
Analysts had said it was only a matter of time before silver would give way, citing flagging industrial demand. More than 3,000 lots were sold in Comex silver futures in just 20 minutes of early Asian trading on Monday, Reuters data showed. Yuichi Ikemizu, a branch manager for Standard Bank in Tokyo, said an unidentified investor sold off a big chunk of silver holdings on Monday morning. The gold-silver ratio is at its highest level since September 2010, with an ounce of gold currently buying 63 ounces of silver. That is twice as much as in April 2011, when silver was trading considerably higher.
“The latest move lower has been to some extent technical, but silver was the underperformer among precious metals during the mid-April fall,” Citigroup metals strategist David Wilson said. Holdings of the largest silver ETF, the iShares Silver Trust, fell 187.7 tonnes last week to 10,253 tonnes, hitting their lowest level since mid-January.
Comments from Federal Reserve officials and positive US data have boosted talk the bank may reduce its monetary easing measures, which had supported gold in recent years by holding down interest rates and undermining the dollar. Gold hit a low of $1,338.95 an ounce earlier on Monday, its weakest since April 16, when worries that European central banks might liquidate gold reserves and a break through the technical level of $1,525 an ounce prompted a sell-off.
Spot prices erased losses and were up 0.3 percent to $1,363.10. US gold futures were still down 0.2 percent to $1,361. “Generally the market has realised that there is no compelling reason to buy gold. People look at the entire macroeconomic picture, and none of the factors there look supportive for the metal,” BofA Merrill Lynch analyst Michael Widmer said.
The market will now focus on congressional testimony on the US economy by Fed Chairman Ben Bernanke on Wednesday and the FOMC minutes for its April meeting. Hedge funds and money managers cut net long positions in gold and silver futures and options in the week to May 14, a report by the Commodity Futures Trading Commission (CFTC) showed on Friday. Money managers pulled $1.4 billion from the US gold futures market, Reuters calculations based on CFTC data showed.
Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, hit their lowest in four years on Friday, declining 3 tonnes to 1,038.41 tonnes. In other precious metals, platinum fell 0.3 percent to $1,446.24 an ounce. Palladium turned higher after a lower start at $736.97 an ounce.