Silver prices lead broad commodities sell-off

Plunging silver prices led a broad decline in commodities Wednesday as investors sold holdings to capitalize on weeks of price gains for everything from gold to oil.

Silver fell $3.197, or 7.5 percent, to settle at $39.388 an ounce. That is the third consecutive daily loss after it came close to $50 an ounce last week. Palladium dropped 4.6 percent; wheat, 2.7 percent; and oil, 1.6 percent. Many commodities still settled higher than they were at the start of the year.

The sell-off came as investors continued to worry about unrest in the Middle East and North Africa, debt problems in several countries, the threat of inflation and higher interest rates.

Some also looked ahead to the end of the Federal Reserve's $600 billion bond-buying program in June. The Fed's low interest rates have kept the dollar weak. Since commodities are priced in dollars, a weaker dollar makes them more of a bargain for buyers who use other currencies.

"The fundamental shift is risk reduction. We've had stellar gains. Why not reduce some of our risk at the top of all these great returns?" said Lind-Waldock senior market strategist Rich Ilczyszyn.

Depending on how the markets close over the next few days, Ilczyszyn said the next few days could show whether commodities are in a small price pullback or a major price shift.

Much of silver's drop came as speculators pulled out of the market, CPM Group analyst Carlos Sanchez said. Silver draws a diverse group of investors. Along with gold, it is a precious metal seen as a stable asset during unsettled times and a hedge against inflation. Silver also is used in a number of consumer products; including LCD televisions, smartphones and jewelry. The combination can make silver prices more volatile because the market for the metal is smaller, resulting in greater price swings.

Despite silver's three-day swoon, the price is still 27.3 percent higher on the year.

In other metals trading, June gold fell $25.10 to settle at $1,515.30 an ounce; July copper fell 11.9 cents to settle at $4.134 a pound, July platinum fell $34.20 to settle at $1,826.30 an ounce and June palladium fell $35.70 to settle at $746.70 an ounce.

Meanwhile, oil prices declined after a government report showed that supplies of petroleum products are growing as demand weakens in the U.S. Benchmark crude for June delivery fell $1.81 to settle at $109.24 a barrel on the New York Mercantile Exchange.

In other Nymex trading for June contracts, heating oil lost 4.78 cents to settle at $3.143 per gallon, gasoline futures slipped 0.69 cent to $3.3225 per gallon and natural gas dropped 9.4 cents to $4.644 per 1,000 cubic feet.

In July agriculture contracts, wheat fell 21.25 cents to settle at $7.72 per bushel, corn rose 5.75 cents to settle at $7.295 a bushel and soybeans fell 11.75 cents to settle at $13.52 per bushel.

(Source: http://news.yahoo.com/s/ap/20110504/ap_on_bi_ge/us_commodities_review_6)