Silver Heads for Biggest 3-Day Drop Since 2008 on Margin Boost
May 4 (Bloomberg) -- Silver futures dropped, heading for the biggest three-day fall since March 2008, as an increase in margin requirements on the Comex in New York drove investors away. Gold also fell after a report that Soros Fund Management LLC may have cut holdings.
Silver for July delivery slumped as much as 5 percent to $40.465 per ounce, after losing 7.6 percent yesterday and 5.2 percent on May 2. The metal was at $41.175 at 2:01 p.m. in Singapore, taking losses over the three days to 16 percent. Immediate-delivery gold fell 0.2 percent to $1,533.28 an ounce, also lower for a third session.
CME Group Ltd., Comex’s owner, said this week that the minimum amount of cash that must be deposited when borrowing from brokers to trade silver futures will rise to $16,200 per contract at the close of business yesterday, from $14,513. A year ago, the margin was $4,250.
“Silver is often the lead indicator for changes in trends, or at least for corrections,” David Wilson, an analyst at Societe Generale SA, wrote in a note. After futures rallied to a record $50.35 an ounce in January 1980, prices dropped 78 percent in four months.
Soros Fund Management, the $28 billion hedge fund run by Keith Anderson, has sold much of its gold and silver holdings, the Wall Street Journal reported today, citing unidentified people. Many of the sales took place over the past month as there was a reduced risk of deflation, according to the report.
From the start of this year to the end of April, silver futures rallied 57 percent, peaking at $49.845 on April 25. The metal was the best performer in that period among the 24 raw materials tracked by the Standard & Poor’s GSCI Index.
‘Opportunistic Buyers’
“A reversal of 20 percent or more, returning the metal to levels in the mid-$30s, would not surprise us at all,” Edel Tully, a London-based analyst at UBS AG, wrote in a report. “Only then would we be opportunistic buyers.”
Demand for silver and gold has been supported by the growing prospect of currency debasement and accelerating inflation. The dollar fell 7.5 percent against a basket of six major currencies this year, sliding to its lowest level since 2008.
Silver assets held in exchange-traded products fell 1.1 percent to 15,169.80 metric tons yesterday, while gold holdings stood little changed at 2,069.78 tons, according to data compiled by Bloomberg.
Gold for June delivery in New York declined as much as 0.6 percent to $1,531.20 an ounce, after losing 1.1 percent yesterday. Futures reached a record $1,577.40 on May 2.
Gold to Silver Ratio
Gold was “dragged lower by another sharp drop in silver,” Mark Pervan, head of commodity research at ANZ Banking Group Ltd., wrote in a note. “Although silver is a smaller market and prone to choppy trading, it still had a bearish impact.”
UBS’s Tully said the gold-to-silver ratio may return to 40 this month after a decline to 31.7135 on April 28, the lowest level since 1980. An ounce of gold bought 37.15 ounces of silver today.
“We remain significantly more friendly to gold than to silver,” she said. “We find it very likely that investors, happy with their silver gains this year, will accelerate their profit-taking.”
Palladium for immediate delivery lost 0.8 percent to $767.75 an ounce, while platinum fell 0.7 percent to $1,841.50
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