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Silver and gold fall but end session up from their lows

November 10, 2010 |  2:20 pm

Silver prices got slammed Wednesday after investors were forced to put up more “margin” money to bet on futures contracts, but the metal held above its lowest levels reached after word of the new requirements hit late Tuesday.

Gold also fell from its record high but ended just slightly below $1,400 an ounce.

“It could have been a lot worse,” said Larry Young, a commodities trader at Covenant Trading in Chicago.

He noted that a 4-day-old rally in the dollar, the archrival of the precious metals, also weighed on gold and silver.

Silverdollar December silver futures in New York slid $2.04, or 7.1%, to end at $26.86 an ounce on the Comex in New York on Wednesday. The metal had hit a 30-year high of $28.90 on Tuesday, leaving the price up 72% year to date.

After regular trading ended on Tuesday the Comex raised margin requirements on silver futures, making it more expensive to trade or hold a contract. Margin minimums often are raised in times of wild volatility in trading.

The move sent silver plunging as low as $26.42 in electronic trading Tuesday evening. On Wednesday the metal sank at the outset of the regular Comex trading session, but December futures bounced after hitting $26.48.

Are the precious-metals bulls cowed for the moment, after the spectacular rallies of the last two months that were powered in part by the dollar’s slide?

With the heavy hit to silver, “I can see a lot of people sitting on the sidelines now,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago.

But he said he still wouldn’t “short” the metal, betting on sharply lower prices. With U.S. trading partners irritated by the Federal Reserve's new plan to flood the financial system with dollars, any new weakness in the buck could bring buyers running back to silver and gold, he said.

Gold bulls did a pretty convincing job holding their ground Wednesday. The yellow metal, which closed at a record high of $1,409.80 an ounce on Tuesday in regular trading, sank as low as $1,382 in electronic trading that afternoon.

On Wednesday gold fell as low as about $1,384 in the regular session but recovered to close off $10.70, or 0.8%, at $1,399.10.

At a minimum, the sell-off in silver that began late Tuesday probably portends a lot more volatility in the metals in the short term, Young warned.

“This is a trader’s paradise,” he said.

Commodity prices in general, many of which also have been rocketing in recent months, were mostly lower Wednesday. But the Reuters/Jefferies CRB index of 19 major commodities lost a modest 2 points, or 0.6%, to 317.11. That ended a nine-session winning streak.

-- Tom Petruno

Photo: A 1796 U.S. silver dollar. Credit: Anne Cusack / Los Angeles Times