Silver and gold lead broad drop in commodities

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Gold and silver led a broad sell-off in commodities on Wednesday as investors reacted to some weaker-than-expected economic data and to reports that big-name players have been reducing their precious-metals holdings.

Silver, which through last week had been one of the world’s hottest investments in 2011, plunged for a third day. Near-term futures in New York sank $3.19, or 7.5%, to $39.38 an ounce, the lowest price since April 4.

Gold fell $25.20, or 1.6%, to $1,514.90 an ounce.

Of the 19 commodities in the ThomsonReuters/Jefferies CRB index, 16 were down for the day. The index was off 1.8% to 358.63 just before noon PDT, the third straight decline.

Raw materials prices had rallied sharply since August on optimism about the economy and as the falling U.S. dollar made many commodities less expensive for foreign investors and speculators.

But a modest slowdown in April U.S. manufacturing activity, reported Monday, and a deeper slowdown in the services sector, reported Wednesday, have raised concerns about the pace of the recovery, and therefore about fundamental demand for commodities.

Continued credit-tightening by many foreign central banks (such as India’s and China’s) also is stoking fresh worries about growth overseas.

Copper, highly sensitive to the economic outlook, fell 12 cents, or 2.8%. to $4.12 a pound on Wednesday, a seven-week low. The price is off 8.4% since April 8.

Crude oil futures in New York fell $1.81 to $109.24 a barrel, a two-week low.

Silver and gold also were hit by a Wall Street Journal report that prominent investors including George Soros have been selling some of their holdings, taking profits after hefty price gains since August.

Silver, which has become a favorite bet of small investors, reached a 31-year high of $48.58 an ounce on Friday. It has plummeted 19% since then, but still is up 27% year to date.

Gold hit a nominal record high of $1,556.70 an ounce on Monday. It’s down 2.7% since then, and is up 6.6% this year.

Concern about wild speculation in silver caused CME Group, the parent of the Comex futures exchange, to raise margin requirements on silver futures contracts three times in the last 10 days. Margin is the minimum cash deposit investors must put up or maintain to trade the contracts.

By raising margins the exchange makes it more expensive to trade, shaking some speculators out of the market.

-- Tom Petruno