(Bloomberg) — Silver fell more than 6% in its biggest drop in six months as the broad precious metals group retreated following a furious rally this week.
The pullback came as concerns eased over credit quality in the US and trade frictions between China and the US, which is denting haven demand for gold and silver. President Donald Trump’s remarks on Friday soothed anxiety around trade tensions while solid results from regional banks helped stablize the stock market and lift bond yields. Higher rates typically are negative for bullion, which doesn’t pay interest.
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A historic squeeze in the silver market in London is also showing signs of easing, prompting some profit-taking by investors.
“The London shortage is alleviating somewhat from extreme levels and the more regional dislocations smooth out, there could be pressure and profit-taking,” said Nicky Shiels, head of metals strategy at MKS Pamp SA.
Silver set fresh all-time highs this week, approaching $54.50 an ounce on Friday before tumbling in a rally that looks to have gone too fast too soon. A gauge of price momentum, known as a relative strength index, suggests too many people have been buying silver since late September and signals a potential for a pullback in prices. Gold is in a similar situation.
Still, gold has surged more than 60% this year, underpinned by central-bank buying and inflows to bullion-backed exchange-traded funds. Traders are also piling into wagers on at least one jumbo US rate cut by year-end. That would benefit non-yielding precious metals.
The last two weeks have seen the London silver market tighten dramatically, propelling prices well above New York silver futures and leading traders to fly metal across the Atlantic. The historic squeeze in London sparked a worldwide hunt for the metal, with its one-month annualized borrowing costs sitting around 20% on Friday.
Over the past week, more than 15 million ounces of silver have been withdrawn from warehouses linked to the Comex futures exchange in New York. Much of that is likely headed to London, where it should help ease tightness, as will a hefty 10 million ounce outflow from silver backed ETFs on Thursday. The price gap between the two trading hubs remains wide at more than $1.10 an ounce, though that’s much narrower than a spread of as much as $3 last week.