All about silver crash and why gold is holding on

It was indeed Mayday for Silver. Spot prices of the white metal have plummeted more than 25 per cent in the first five days of this month, signaling an end (or perhaps a prolonged pause) to the recent sky-is-the-limit predictions to the industrial metal’s price forecasts.

While the metal was definitely due for some correction (we told you so), the pace at which the metal has declined – and the fact that its richer cousin gold has held on to at least part of its recent gains – suggests there’s more than pure demand-supply at play.

Indeed there is. The recent drop in silver is a direct reaction to New York’s Comex exchange making it difficult – at least much more expensive – for speculators to play the silver futures market, starting coming Monday, May 9.

From a high of $48.58 recorded on May 1, spot silver price has declined every session since and fell another 7.73 per cent 2100 UAE time to slump to a low of $36.34 per ounce this evening, signaling the biggest price-slump the white metal has witnessed since 1983. Moreover, analysts believe that it is in for some more hammering over the next couple of days as the Comex exchange has made it 83.9 per cent more expensive for speculators to trade the metal, triggering an exit by investors.

From $11,745 per contract two weeks ago, the minimum amount of cash that investors must deposit when borrowing from brokers to trade silver futures will rise to $21,600 after May 9. According to Comex data, open interest in futures tumbled about 15 per cent since the exchange began raising margin requirements on April 25.

While this goes on to show that a substantial part of the 57 per cent gains that the price of silver had witnessed in 2011 until May 1 was fuelled by speculators betting on it, retail investors too are dropping the metal as it could go to as low as $34 per ounce in the coming week, believe analysts.

Gold too has seen massive volatility but the metal has held on to some of its gains, with the metal trading at $1,480.67 per ounce this evening, down 4.88 per cent from $1,556.70 it reached on May 2. This once again bolsters the yellow metal’s safe haven status – which cushions it decline in volatile times while acts as a catalysts during an uptrend.

Nevertheless, along with a short-term target of $34 an ounce for silver, analysts also believe that the yellow metal could fall down to as low as $1,382 per ounce, or down another 6.66 per cent on current levels, if the US dollar continues to strengthen and gold breaks its 20-day moving average.

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