Silver correction drags metals down

In the Lead: “Back on the Roller-Coaster”

A larger than nine percent reversal in the price of silver overnight helped drag the entire precious metals complex to lower price ground as the new trading day dawned on Thursday. Proving once again that it is little more than investment nitroglycerine, the white metal turned away from the high of $39.01 seen just hours prior to the start of trading this morning and fell to lows just above the $36.00 mark as sellers made an aggressive exit from the niche and likely took some sizeable profits in the process.

For the moment, the previously apparent push towards the upper end of the $39 - $42 zone appears to have failed at the bottom end of that range and brings into question what might come next for the metal. At any rate, the leakage just this week of some 280 metric tonnes of silver from the ETFs that use it for their backing has helped bring the total tally of the current year’s losses in such balances to 1,331 metric tonnes. Not exactly the type of pattern that makes for a sustainable period of price strength in silver.

Thursday’s opening bell in New York saw gold declining by about $7.00 per ounce to start at just under the $1,520.00 level despite a sizeable easing in the US dollar (off 0.40) on the trade-weighted index, and despite a still-resilient crude oil (down only three pennies at $101.29 pbbl). Silver fell 86 cents (2.27%) while players were seen trying to halt its slide with less than successful efforts. However, losses in both the yellow and the white metal were pared somewhat following the worse than-anticipated figures on the US jobless claims and GDP fronts. The disappointing figures added to selling pressure in the US dollar within the first half-hour of trading action and this helped the precious metals recover somewhat.

Speaking of the greenback, just when PIMCO has sounded the alarm on the US currency, Boston-based Fidelity Investments ($1.46 trillion under management) opines that “the value of the dollar is close to a bottom.” In fact, the firm’s manager of the Fidelity New Markets Income Fund, John Carlson wrote in a report on their website that he has “never been more optimistic on the long-term prospects of the US dollar and the US economy.” The dollar has lost 13% over the past year even after it gained 3% since May 4. The battle of Carlson versus Gross bears watching, folks. Much money under management is at stake.

Thus, and not to be discounted still, for the remainder of the session, would be larger-than-“normal” (whatever “normal” might be for silver anymore) moves in either direction. Whether or not gold also begins to exhibit a trend towards having clearly turned away from attempts to penetrate into the $1,530 - $1,545 zone will define some of what could take place in silver, but, at this juncture, one could say that it is rather the latter that is “calling the shots” in the precious metals’ space. Players will be looking out for options expiries and the emergence of pre-long-weekend book-squaring rituals which some label as the “get-me-out-before-the-weekend syndrome.”

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