Silver plunges for fourth consecutive day

Silver prices plunged for the fourth consecutive day on Thursday as the grey precious metal suffered its biggest correction since the billionaire Hunt brothers cornered the market in 1980.

The reversal of fortunes for silver – which until this week’s 25 per cent drop had been up 56 per cent since January – has led a wider sell-off in commodities markets, which were heading towards one of their worst one-day falls on record.

“The silver market has become even more unhinged as the week nears an end, with no sign yet that the nervous selling momentum is near petering out,” said Edel Tully, precious metals strategist at UBS.

“This has paved the way for a wider commodity slump,” she added.

On the spot market in London, silver fell as much as 9 per cent on Thursday to a six-week low of $35.82 a troy ounce.

The volatility in silver has been exacerbated by a series of increases in margin – or the amount of cash that investors must set aside to trade each contract – by CME Group, which runs the silver futures exchange in New York.

CME has raised its margin requirements five times in the past 15 days. Investors must now set aside $14,000 per silver futures contract, worth about $180,000 at current prices. The rate will rise to $16,000 on Monday.

The increase in trading costs has forced some investors to sell their futures positions if they are unable to raise sufficient cash. The changes in margin rates are a function of the increases in volatility and price rises.

Investors have also been rushing to sell silver held through exchange-traded funds.

Holdings of silver through ETFs fell by 520 tonnes on Wednesday, the second largest daily drop on record, according to Suki Cooper, precious metals analyst at Barclays Capital in New York.

Investors had withdrawn 1,105 tonnes of silver from ETFs in seven days, Ms Cooper added, a decline of about 10 per cent.

The drop in silver comes after a spectacular rally in which the metal soared 175 per cent between August last year and last week, when it rose to within touching distance of the all-time nominal high of $50 an ounce, amid widespread enthusiasm among investors.

Sales of silver coins surged to record levels as retail investors, particularly in North America, bought the metal as an expression of dissatisfaction with the perceived profligacy of the Federal Reserve and the US government and the faltering US dollar.

The tumble in silver has led the price of other precious metals lower. However, gold has managed to remain relatively unscathed compared with its poorer cousin. Since hitting an all-time peak on Monday, the yellow metal is down 5.9 per cent at $1,483 an ounce.

Platinum and palladium, the other two main precious metals, have fallen 5.2 and 10.4 per cent respectively in the past four days.

GFMS, a leading precious metals consultancy, said in its annual survey of the two metals that palladium could rally to a fresh 10-year high of $975 a troy ounce, while platinum would hit a peak of $1,925 a troy ounce this year.

However, Philip Klapwijk, the consultancy’s executive chairman, warned that before the metals hit new highs, a “summer slump” across the precious metals was “quite likely”.

(Source: http://www.ft.com/cms/s/0/6520b326-773d-11e0-aed6-00144feabdc0.html#axzz1LXeSQeOW)