Silver, Gold Hit by Soros Selling

SAN FRANCISCO (MarketWatch) — Silver and gold futures fell Wednesday on a newspaper report that high-profile investors George Soros and John Burbank have sold precious metals, with silver still reeling from an exchange decision to increase trading requirements.

Silver for July delivery closed lower by $3.20 an ounce, or 7.5%, at $39.19 an ounce on the Comex division of the New York Mercantile Exchange. That was the lowest close since April 6.

The contract had tumbled nearly 8% in the previous session, posting the largest one-day drop since December 2008. It also posted sharp losses on Monday and has lost 20% since Friday.

“It’s almost like a bungee jump cord, you don’t know when it’s going to bounce after a free fall like that,” said Adam Klopfenstein, senior market strategist with Lind-Waldock in Chicago.”It’s a self-fulfilling prophesy.”

Traders were also digesting a Wall Street Journal report that said George Soros’s hedge fund, a firm operated by investor John Burbank and some other leading groups, have sold much of its gold and silver because there’s less chance of deflation.

A spokesman for Soros declined to comment.

“Well-heeled” investors leaving the trade “put fears in people’s minds,” Klopfenstein said.

Unlike gold, bought by large investors, funds and central banks, silver is mostly dominated by individual investors.

Silver could trade as low as $36 an ounce in the next few weeks, he added.

The Journal reported that the selling pressure threatened the nine-month rally in precious metals but added that some prominent investors, such as hedge-fund manager John Paulson, have continued to favor gold and silver.

Silver futures were also under pressure following Comex operator CME Group’s (NASDAQ:CME) latest increase in margin requirements, which came into force after the close of trading Tuesday.

The exchange had increased margin requirements twice last week. As the stakes of trading a futures contract moved higher, some small investors have been forced to liquidate in the past few days, analysts have said.

Gold also declines

Gold for June delivery (COMMODITIES:GCM11)  fell $25.10, or 1.6%, to $1,515.30 an ounce on Comexin the biggest one-day percentage drop since March 15. The metal dropped 1.1% on Tuesday.

Goldman Sachs analysts, though, said in a recent note that gold remains “one of [their] preferred commodities,” with price trends still skewed to the upside.

“Uncertainty in currency markets and medium-term inflationary risk are likely to support investment demand,” according to Goldman. “Recent high-profile investments by prominent institutions … confirm that institutional money is now adding to an investment trend that has hitherto been dominated by retail money.”

Geopolitical tensions in North Africa and the Middle East were also supporting gold prices, according to Goldman Sachs.

The broader suite of metals declined Wednesday. Copper for July delivery (COMMODITIES:HGN11)  fell 12 cents, or 2.8%, to $4.13 a pound.

Metals garnered some support from a weaker dollar.

Also, gold’s status as a currency alternative to the dollar was boosted by news that Mexico’s central bank had bought nearly 100 metric tons of gold in February and March, according to a Financial Times report citing a Bank of Mexico report and International Monetary Fund data.

The U.S. currency was weaker Wednesday. The dollar index (BOARD:DXY) , which measures the greenback against a basket of six currencies, traded at 72.972, from 73.127 in late North American trading on Tuesday.

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