London: Silver and gold recovered some losses on Wednesday as the dollar wilted on US data, however precious metals remained under pressure after a strong rally in the last few weeks.
Mexico became the latest emerging economy to ditch some of its holdings of US dollars in favour of gold, buying over $4 billion worth of bullion between January and March, while the currency of its biggest trading partner sits at two-and-a-half-year lows.
“The size (of the purchase) is certainly pretty chunky to have been accomplished in that space of time. So it certainly gives another sizeable layer of support to gold’s position in the international reserves system,” said Credit Suisse AG precious metals analyst Tom Kendall.
US silver futures have lost 14% over the past four sessions, wiping out gains from the previous three weeks that took the price to a 31-year top just below $50 on 25 April.
US July silver futures fell to $40.96 an ounce by 1340 GMT, extending an 8% slide on Tuesday, when CME Group raised margin requirements on silver futures for the third time in a week.
Spot silver was bid at $41 versus $41.64 in New York late on Tuesday. It earlier fell more than 3% to $40.30 an ounce, its lowest since mid-April.
“At the moment, we’re just consolidating especially for silver after such a strong retreat at the start of the week,” VTB Capital analyst Andrey Kryuchenkov said.
“The fact that the greenback has started coming off again is an additional factor to keep the metals here.”
Spot gold was bid at $1,536.40 an ounce, having hit a record $1,575.79 on Monday, and compared with $1,540.38 the previous day. Comex gold shed 0.2% to $1,536.9.
US private employers added 179,000 jobs in April, coming in shy of economists’ expectations, a report by a payrolls processor showed on Wednesday.
The dollar hovered just above a three-year low.
Silver is still one of the top-performing commodities of the year, having risen by almost 45%. But investors remained wary of a market in almost chronic surplus and a highly volatile price.
Holdings of the largest gold-backed exchange-traded-fund (ETF), New York’s SPDR Gold Trust, fell 0.42% from Monday to Tuesday, while the largest silver-backed ETF, New York’s iShares Silver Trust, fell 0.95%.
“Even as gold has underperformed silver to the downside, so it should be seen as a buy much sooner than silver will be, perhaps closer to $1,500 where our one-month forecast sits,” UBS said in a research note. “Silver, by contrast, could well move down to the mid-$30s, though a near-term rebound to the $45 area can’t be ruled out—making the metal difficult to trade at present, whether from the long side or the short side.”
Beyond the correction, gold and silver are expected to resume their upward trend, as worries about rising inflation and ongoing unrest in the Middle East and North Africa, as well as low US interest rates may continue to drive investors to these precious metals, traders said.
Chinese inflation is expected to moderate in the second half of the year as government measures to curb price rises hit their mark, said a senior central bank official. The statement is unlikely to dampen the long-term sentiment in gold, traders and analysts said.
The European Central Bank, which has raised interest rates last month, is expected to signal its readiness to hike rates again when it meets on Thursday.
Platinum was lower at $1,831.74 an ounce, while palladium fell more than 3% to $756.47.
Rujun Shen in Singapore contributed to this story.