Silver, gold fall on technicals, rising U.S. rates

By Frank Tang

NEW YORK (BestGrowthStock) – Silver fell 4 percent in heavy trade on Tuesday, its fourth biggest one-day loss this year, and gold dropped more than 1 percent, hit by a combination of technical selling and rising short-term U.S. interest rates.

On Monday, silver rose above $30 an ounce and gold set a record high in a safe-haven play on concern about debt in the eurozone and speculation of more U.S. monetary easing after comments by Federal Reserve Chairman Ben Bernanke.

“Obviously, the silver market was vulnerable to some type of profit taking or technical correction due to that very significant run in a very short period of time,” said David Meger, vice president and director of metals trading of Vision Financial Markets in Chicago.

Meger cited strong technical resistance for silver at $30.80 an ounce, and a sell-off in gold and metals after U.S. benchmark Treasuries rates yields posting their biggest one-day rise since June 2009 and their highest since June.

Even after Tuesday’s decline, silver remained up 70 percent year to date, outperforming gold’s 28 percent.

Spot gold dropped 1.6 percent to $1,400.95 an ounce at 5:05 p.m. EST (2205 GMT), sharply below a record $1,430.95 set during the session. U.S. gold futures for February delivery settled down $7.10 at $1,409.

Gold’s retreat was in line with a pullback in other commodities, with copper also easing back from record highs and oil slipping from an earlier two-year high. (MET/L: ) (O/R: )

Spot silver tumbled 5.1 percent to $28.62 an ounce, having earlier hit fresh 30-year highs at $30.68 an ounce. U.S. COMEX silver futures volume totaled almost 120,000 lots, one of the most heavily traded day of this year.

Gold volume on the COMEX division of the New York Mercantile Exchange was nearly 200,000 contracts, about 18 percent below its 30-day average, as some trading desks and funds already have closed their books ahead of the year end.

“The market had really run out of momentum, and, although we made new highs, it was more on sentiment than on fresh business,” said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

The precious metal is likely to remain supported by concerns over the financial health of the euro zone.

Germany and other euro zone states resisted calls on Monday from the International Monetary Fund to do more to quell the bloc’s debt crisis, although the euro firmed on optimism that Ireland would pass an austerity budget.

“Even though the euro is regaining a little bit of strength against the dollar after the losses yesterday, it is still on the weak side, and fears of contagion are lingering,” said Peter Fertig, a consultant at Quantitative Commodity Research. He was referring to worry that debt problems would spread in the euro zone.

DWINDLING LIQUIDITY

Federal Reserve Chairman Ben Bernanke signaled on Sunday the U.S. central bank could expand its existing quantitative easing program by buying more government bonds.

With the U.S. dollar set to come under more pressure from the prospect of rising money supply, gold should reap the benefits of investors seeking an alternative to volatile currencies, analysts said.

However, the end of the year traditionally brings with it less liquidity and greater potential for rapid shifts in price direction, meaning that gold could endure more setbacks before resuming its uptrend.

“Tactical investors have turned positive on gold and silver and increased their long exposure. In our view, positioning does not look excessive, suggesting that the sector could attract further near-term flows,” Credit Suisse analysts said in a note. “However, with markets closing in on critical price levels, risks of investors’ taking profits have increased as well.”

The number of ounces of silver needed to buy one ounce of gold hit its lowest level since February 2007 at just 46.99, having declined from a seven-month high this February at 70.91.

Platinum slipped 1.4 percent to $1,696 an ounce, while palladium lost 2.2 percent to $738.97.

Prices at 5:13 p.m. EST (2213 GMT)

LAST/ NET PCT YTD

CLOSE CHG CHG CHG US gold 1409.00 -7.10 -0.5% 28.5% US silver 29.777 0.042 0.0% 76.8% US platinum 1705.20 -8.40 -0.5% 15.9% US palladium 738.70 -12.70 -1.7% 80.7%

Gold 1400.60 -0.26 0.0% 27.8% Silver 28.62 -0.04 -0.1% 70.0% Platinum 1686.99 -1.51 -0.1% 15.1% Palladium 729.50 -0.47 -0.1% 79.9%

Gold Fix 1420.00 -6.00 -0.4% 28.6% Silver Fix 30.50 90.00 3.0% 79.5% Platinum Fix 1724.00 3.00 0.2% 17.6% Palladium Fix 769.50 7.50 1.0% 91.4%

(Additional reporting by Amanda Cooper and Jan Harvey in London; Editing by David Gregorio)

Silver, gold fall on technicals, rising U.S. rates