Silver fell again by inviting gold

COMEX silver fell 3% on Wednesday, fell for the third straight session, and gold faltered as precious metals are under pressure to improve after a strong rally in recent weeks.

However, the overall trend in gold and silver remain bullish, as concerns on rising global inflation, unrest in the Middle East and North Africa, and low U.S. interest rates drive investors to park their value in precious metals.

"On the way up, it (silver) was too fast and now we are seeing a general liquidation of long positions," said a Singapore-based trader.

"Silver has been falling much faster than gold, but it doesn't mean that silver will collapse from here."

Gold hit record highs in 11 out of past 14 sessions and spot silver has surged more than 20 percent since mid-April to a 31-year high just below $50 on April 28.

The immediate support level for silver is seen around $39, its 50-day moving average, he added.

COMEX silver SIcv1 hit a near three-week low of $40.47 earlier. It shed 3 percent to $41.30 an ounce by 0326 GMT, extending an 8-percent loss from Tuesday, after the CME Group hiked margin requirement for the third time in a week.

Higher margins make speculation more expensive, adding to the pressure on silver prices.

Spot silver fell by 0.9 percent to $41.26.

Investment interest in silver ebbed, as holdings in the iShares Silver Trust , the world's biggest silver-backed exchange-traded fund, dropped to a seven-week low of 10,909.06 tonnes, 4 percent off the record high hit on April 25.

The gold-silver ratio, used to measure how many ounces of silver is used to buy an ounce of gold, recovered to above 37 from below 32 last week, its lowest since early 1980s.

Spot gold declined 0.5 percent to $1,532.60 an ounce, headed for a third straight day of loss.

COMEX gold GCcv1 also lost half a percent to $1,533.20.

CHINA INFLATION OUTLOOK

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. [ID:nL3E7G403Y]

The statement is unlikely to dampen the long-term sentiment in gold, traders and analysts said.

"It doesn't turn the market around. All the actions will only slow down the pace of inflation," said the Singapore-based trader.

China has raised interest rates four times since last October and banks' required reserve ratio to a record level, to fight stubborn inflation.

"China's rate hikes tend to have a rather short-lived impact on global gold market," said Li Ning, an analyst at Shanghai CIFCO Futures. "The key is when the U.S. will start raising interest rates."

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. [ID:nLDE7420ZV]

Precious metals prices 0326 GMT
  Metal             Last    Change  Pct chg  YTD pct chg    Volume
  Spot Gold        1532.60   -7.78   -0.51      7.97
  Spot Silver        41.26   -0.38   -0.91     33.70
  Spot Platinum    1846.49   -6.82   -0.37      4.47
  Spot Palladium    771.00  -12.69   -1.62     -3.56
  TOCOM Gold       4072.00  -15.00   -0.37      9.20        22271
  TOCOM Platinum   4904.00   41.00   +0.84      4.43         3055
  TOCOM Silver      118.70    1.30   +1.11     46.54         1953
  TOCOM Palladium  2030.00  -17.00   -0.83     -3.20          197
  COMEX GOLD JUN1  1533.20   -7.20   -0.47      7.87         6745
  COMEX SILVER JUL1  41.30   -1.29   -3.02     33.48         6822
  Euro/Dollar       1.4794
  Dollar/Yen         80.94
  TOCOM prices in yen per gram. Spot prices in $ per ounce.
  COMEX gold and silver contracts show the most active months

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