Comex gold, silver sell-off in stronger dollar, softer oil environment

Gold and silver on the Comex division of the New York Mercantile Exchange underwent a noteworthy correction on Thursday as the dollar strengthened, oil prices dropped and fund managers saw an opportunity to book profits.

Silver posted the biggest loss with the May contract recently off $1.167, or about 3 percent, at $34.88 an ounce in New York. On Tuesday, the grey metal touched a 31-year high of $36.55.

Meanwhile, gold futures for April delivery were down $22.50, or 1.6 percent, at $1,407.10 an ounce. Trade has ranged from $1,403 to $1,431.80.

"The metals have looked a little frothy, particularly silver. Today's sell-off is dollar oriented mostly," said Sterling Smith, an analyst with Country Hedging, who added the European currency chart is looking a little nervous due to the re-emergence of sovereign-debt worries.

The euro fell about 1 percent to 1.3788 against the dollar after Moody's downgraded Spain's credit rating to Aa2 from Aa1 and warned that additional cuts could be forthcoming. On Monday, the rating agency slashed Greece credit by three notches.

Standard Bank said in a note that the debt crisis in eurozone peripherals is moving more into the focus of market players again.

"Even so, a rate hike by the ECB in April is virtually certain although the debt crisis is rekindling. Rising interest rates will lead to higher opportunity costs for holding gold and therefore make gold less attractive for investors," the bank analysts said.

Falling crude oil prices also placed some downward pressure on the precious metals complex. Light sweet crude (WTI) oil futures on the Nymex were recently down $2.54, or about 2.5 percent, at $101.84 per barrel.

While the chaotic situation in Libya is far from resolved, the energy markets on Thursday reacted to news that China recorded an unexpected trade deficit of $7.3 billion in February - its highest in seven years.

Also of note, silver's big loss on Thursday means that the gold/silver ratio has moved to the more manageable number of 40.3:1 from 39:1 on Tuesday.

"Silver had overheated by a large amount and the gold/silver ratio had gotten out-of-whack. Although, we're still going to have to take that ratio back to 43.5-44:1 to get the precious metals back healthy again," Smith said.

"Silver is a very polarized market. We saw silver run up excessively and now we're seeing it sell-off a little bit excessively as well," Smith said.

As for the other precious metals, platinum for April delivery was down $39.60 at $1,762.40 an ounce, while the June palladium contract fell by $15.10 to $766.55 an ounce.

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