Advertisement

Silver and gold rally again as buyers return

Share

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Silver prices rose for a second straight day Tuesday, and gold for a third consecutive day, as commodities continued to regroup after last week’s drubbing.

Spot silver prices in the New York futures market rallied $1.37, or 3.7%, to $38.48 an ounce, after gaining $1.83, or 5.2%, on Monday.

Advertisement

Gold rose $13.70, or 0.9%, to $1,516.60 an ounce after adding $11.70, or 0.8%, in the previous session.

Traders said demand for the metals was underpinned by renewed worries about Europe’s government-debt crisis, after Standard & Poor’s on Monday downgraded Greece’s debt again.

Expectations have been rising that Greece will need another European Union financial bailout, though the Athens government denied that Tuesday.

Greece’s continued struggles to cope with its mountain of debt sparked rumors late last week that it would leave the euro-currency zone. Despite government denials, those rumors drove the euro down sharply against the dollar Thursday and Friday.

The euro has stabilized this week. It was trading at $1.440 on Tuesday, up from $1.437 on Monday. But the currency is down 2.9%, from $1.483, a week ago.

“If you lose confidence in paper money, you go back to gold and silver,” said Phil Flynn, commodities analyst at PFG Best Research in Chicago.

Advertisement

Commodity prices plummeted last week as some investors rushed to take profits after the surge in prices since August. Sudden strength in the dollar against the euro and other currencies also hit commodities by making them more expensive for foreign buyers (most commodities are priced in dollars worldwide).

The Thomson Reuters/Jefferies CRB index of 19 major commodities (charted at left) tumbled 9% last week. But the index rebounded 2% on Monday and was up 1.3% on Tuesday.

Silver, which had been the hottest commodity in this year’s run-up, thanks in part to heavy buying by small investors, suffered the biggest drop in the recent sell-off. After hitting a 31-year high of $48.58 an ounce April 29, silver plunged 27% last week to end at $35.28 an ounce.

Some of the selling in the metal was triggered by the Comex futures market’s decision to repeatedly raise margin requirements on silver futures contracts in the last two weeks. Margin is the minimum cash deposit investors must put up to maintain or trade the contracts. Higher margins can force some speculators out of the market.

Frank Lesh, a commodities trader at Futurepath Trading in Chicago, said the action in gold and silver the last two days showed the markets were trying to stabilize after the wild trading of the last few weeks. Silver traded in a relatively narrow range Tuesday, with a low of $37.62 and a high of $38.44.

Investors are trying to feel out what new price range silver may be settling into, Lesh said.

He said he expected the price to stay below $40 in the near-term. Some people who bought the metal above that price in recent weeks will be selling into rallies, keeping a lid on any rebound for the time being, Lesh said.

Advertisement

-- Tom Petruno

RELATED:

How small investors fueled a modern-day silver rush

Commodities, Treasury bonds signal unease about economy, but stocks hold up

Advertisement