Correction in gold and silver went too far


Silver hit a string of 31-year highs for most of the year, but the rally ended abruptly last week, when repeat margin-requirement increases squeezed out those unwilling or unable to put up more money to trade the metal.

Silver for July delivery ended Friday’s session down 2.6% to $35.29 an ounce, bringing its weekly loss to 27%, its worst week for the metal since the 1980s.

Often said to be the poor man’s gold, silver still is mostly the realm of retail investors. Such investors felt the pinch of this week’s increased margin requirements.

Actually, retail buyers may have stayed invested in silver long after most hedge funds and other large investors had left, data suggest.

Data from the U.S. Commodity Futures Trading Commission shows money managers’ bets that silver prices would go higher declined starting mid- February, when silver prices started to climb in earnest following a lull in late January.

The trend suggests the so-called ’smart money,’ the large managed funds had started to back away from silver and “retail investors picked up the slack”.

The CFTC data for gold, in contrast, show steady support from money managers in the run-up to this week’s drop.

Investors are likely to parse coming data closely, as it will cover some of the worst days for silver prices this week.

Big investors have stayed more committed to gold. Therefore, the metal price is likely to move slightly higher next week.

The correction went too far and not much has changed on the monetary front, according to analysts.

Gold rebounded slightly last Friday, with the June contract adding $10.20, or 0.7%, to settle at $1,491.60 an ounce. Gold has lost 4% from a record $1,556.40 an ounce last week.


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