Silver futures headed for the steepest weekly decline since at least 1975 as an increase in margin requirements and slump in commodities from copper to oil prompted investors to sell precious metals. Gold is set for the biggest drop since the week to Feb. 27, 2009.
Silver for July delivery on the Comex in New York fell 3.7 percent to $34.895 an ounce at 1:39 p.m. in Singapore, taking losses to 28 percent this week as it plunged for a fifth consecutive day. Immediate-delivery gold gained 0.8 percent to $1,485.60 an ounce, limiting this week’s drop to 5 percent.
The Standard & Poor’s GSCI index of 24 commodities sank 6.5 percent yesterday on concern that slower global growth may crimp demand and as investors sold so-called long positions, or bets on price gains. CME Group Ltd., Comex’s owner, has announced an 84 percent increase in silver margins since April 25. Most commodities, including oil and base metals, rebounded today.
“The higher cash-margin requirements simply cannot be met by all participants, and when a trader can’t make margin, the underlying security is often liquidated,” Lachlan Shaw, a commodity analyst at Commonwealth Bank of Australia, wrote in a note. “Further silver price falls are possible.”
The minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $21,600 per contract after May 9, CME Group said on May 4. That was up from $11,745 two weeks ago. Last week, the futures price jumped to a 31-year high of $49.845 an ounce.
The dollar rose 1.5 percent this week against six major currencies, set for its biggest weekly gain in four months. Asian stocks fell 1.3 percent, the biggest weekly drop since March, as rising jobless claims and lower consumer confidence in the U.S. signaled the economic recovery may be faltering.
Eight of 18 traders, investors and analysts surveyed by Bloomberg, or 44 percent, said that gold will fall next week. Seven predicted higher prices and three were neutral.
“A stronger dollar added to this weakness, although another increase in silver-margin requirements was the main impetus for the downward momentum,” Marc Ground, an analyst at Standard Bank Plc, wrote in a note. “The fall in silver prices has dragged the rest of the precious metals complex lower.”
There may be further declines in base metals as well as a short-term pullback in gold, and the potential drop for silver looked large, Ground said. Gold may slow its descent after central banks added the metal to their reserves, he said.
Mexico, Russia and Thailand added gold to their reserves in February and March, according to data from the International Monetary Fund this week. Central banks are raising their gold reserves for the first time in a generation amid dollar weakness.
Silver assets held in exchange-traded products tumbled 3.6 percent to 14,546.99 tons yesterday, the biggest decline since Jan. 2, 2008, while gold holdings fell 0.7 percent to 2,057.077 tons, according to data compiled by Bloomberg.
“Should there be another selloff in commodities, gold may be impacted,” said Ong Yi Ling, a Singapore-based analyst at Phillip Futures Pte Ltd. “However, its losses may be limited by its safe-haven properties.”
Immediate-delivery palladium weakened 10 percent this week to $714.50 an ounce, while spot platinum shed 4.3 percent to $1,792.6 an ounce.
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