Silver slumped (COMEX:SIZ13) the most in nine weeks as optimism that the Syrian crisis is easing coupled with speculation that the Federal Reserve will reduce stimulus curbed investor demand for the metal.
Gold also retreated (COMEX:GCZ13) the most since July as U.S. Secretary of State John Kerry arrived in Geneva to meet with Russian Foreign Minister Sergei Lavrov to discuss a plan for Syria to surrender its chemical weapons and avert a potential U.S. military strike. Copper reached a five-week low as a report showed euro-area factory output fell more than analysts estimated in July, signaling demand for silver in industrial uses may decline.
Silver has slumped 27% this year, the second-biggest drop among the 24 commodities in the Standard & Poor’s GSCI gauge, as investors lost faith in precious metals as a store of value and the Fed indicated it could reduce debt purchases. Slowing economic growth may cause further price declines because about half of demand goes to industrial applications from solar panels to batteries, data from the Silver Institute show.
“There’s less safe-haven” demand, Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen, said today by telephone. “We’re seeing industrial metals extending their down move. When you have both gold weakness and copper weakness at the same time it seems to have a bit of double whammy on silver.”
Silver futures for December delivery slumped 4.4% to settle at $22.149 an ounce at 1:45 p.m. on the Comex in New York, the biggest drop since July 5. Earlier, prices touched $22.06, the lowest since Aug. 15.
U.S. President Barack Obama has made Syria’s alleged use of chemical weapons the rationale for a potential attack on Syrian President Bashar al-Assad’s war-making ability. Obama said Sept. 10 he was asking Congress to postpone the vote authorizing military action following a Russian-backed proposal to place Syria’s chemical arsenal under international control.
Holdings in silver-backed exchange-traded products climbed 5.6% this year, reaching a record 20,081.7 metric tons in August, data compiled by Bloomberg show. Assets in gold-backed ETPs dropped 26% this year.
Silver rallied as much as 38% from the end of June through Aug. 28 when it touched $25.16 as demand surged in Asia. Prices will retreat to $21.70 in three months and $19.60 in a year, Goldman Sachs Group Inc. forecasts.
The metal tripled in price from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by buying debt. Policy makers will cut monthly debt purchases by $10 billion at their Sept. 17-18 meeting, a Bloomberg News survey of 34 economists Sept. 6 showed.
Less stimulus “could potentially be a bit negative for silver,” Hansen said. “If they do a smaller amount than expected, that could indicate, ‘Yes, we have to start tapering, but we’re not entirely sure whether the economy is going to carry on from here.’”
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.