Bullion dips on Osama news, but expected to bounce back

While Osama Bin Laden’s death is a happy occasion for the US and all those who oppose terrorism, the news has caused investors to unwind their long positions in bullion.

Silver fell by Rs 3,120 to Rs 68,705 a kg in the Mumbai market, four per cent from Saturday’s closing. Traders say silver is still trading at a Rs 1,500-2,000 a kg premium to the imported cost, on scarcity of the metal. Last week, it touched Rs 75,020 a kg in the Mumbai market.

This news caused silver to fall sharply to $42.72 per ounce on the London spot market in electronic trade, the biggest fall in the metal since 2008. It recovered to $45.19 per ounce, but was still down five per cent. CME Group Inc raised maintenance margins for COMEX silver futures by 13.2 per cent to $10,750 per contract from $9,500 effective last Friday. This also resulted in selling of silver on Monday.

The July contract of silver on the Multi Commodity Exchange (MCX) hit a low of Rs 65,702 a kg from Saturday’s close of Rs 71,350 a kg. It, however, closed at Rs 67,428 a kg.

Gold fell 1.7 per cent to $1,540.10 per ounce. The drop was limited as compared to silver, as short positions in the gold-silver ratio were being covered in recent days. The ratio fell to 30.46 last week. Monday, the ratio went above 35 in the morning but later corrected to 34.28, as silver saw some improvement. The gold-silver ratio indicates the amount of silver that can be purchased with one ounce of gold. When traders go short on the ratio, it indicates they expect a faster rise in silver prices than gold. They’d started to cover their short positions in recent days by selling silver. Hence, silver saw a bigger correction compared to gold.

Gold on the Mumbai spot market fell to Rs 22,470 per 10g from Saturday’s close of Rs 22,710 per 10g. The Dollar Index gained 0.3 per cent to 73.155 from 72.933, after earlier touching 72.813, the weakest since July 2008.

Markets feel gold and silver would bounce back due to geopolitical tensions, coupled with the US central bank continuing its quantitative easing till next month.

“Silver has a strong support at Rs 64,000 a kg and $40 per ounce, while the resistance is seen at Rs 72,000 a kg and $50 per ounce on MCX and international markets, respectively,” said Ajay Kedia of Kedia Commodities. He feels if short covering of ratio traders continues, silver could fall sharper than gold but the possibility of a big correction is not visible.