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Silver prices fall for second straight day

The metal sees its biggest drop in more than two years and has declined 12% from its 31-year high reached Friday.

May 04, 2011|By Tom Petruno, Los Angeles Times

Silver prices tumbled for a second day, taking their biggest dive in more than two years, as more investors and traders cashed out after the spectacular run-up in the metal's price this year.

Near-term silver futures in New York plummeted $3.50, or 7.6%, to $42.58 an ounce Tuesday, the biggest one-day drop since December 2008.

The slide left silver down 12% from the 31-year high of $48.58 reached Friday. Before this week's decline, silver was up 57% this year.

Gold also slid Tuesday but not nearly as sharply as silver. The yellow metal edged up Monday.

Traders said one catalyst for this week's pullback in silver was another move by the Comex futures market's parent, CME Group, to limit speculative activity in the metal. For the third time in about a week, the exchange operator raised the minimum amount of cash investors must put up to trade or hold a silver futures contract.

The boost in trading costs led some investors to sell "and it kind of snowballed," said Jeff Friedman, a commodities strategist at Lind-Waldock & Co. in Chicago.

Friedman said the sell-off hasn't surprised market professionals.

"We were way overbought," he said.

Silver has rocketed this year as inflation worries and a slide in the dollar have fueled investors' demand for a hedge against the loss of purchasing power in paper currencies. The metal, though notoriously volatile, has become a favorite of many individual investors.

Meanwhile, gold futures Tuesday closed down $16.60, or 1.1%, to $1,540.10 an ounce after hitting a record high of $1,556.70 on Monday.

Gold historically has been much less volatile than silver. Gold was up 9.5% year-to-date through Friday, about one-sixth of silver's advance.

Strength in the dollar Tuesday helped fuel negative sentiment toward precious metals, although the greenback's gains were modest. An index of the dollar's value against six other major currencies rose 0.2% after hitting a 32-month low Friday.

tom.petruno@latimes.com

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