Silver hits 3-month low on global concerns

Gold follows suit on Fed's tapering buzz but capped in India on festive buying, bearish trend to continue in bullion

Silver prices hit a three-month low at the Zaveri Bazaar spot bullion market here on Saturday, primarily owing to renewed talks of the US Federal Reserves tapering its monthly purchases of securities. Though gold prices followed, the decline was arrested by festive sales in India.

On Saturday, silver prices fell 0.73 per cent to close at Rs 45,940 a kg, a level not seen since August 12. On Friday, silver was traded at $19.87 an oz (28.3g) at the benchmark London market, the lowest since August 7.  In the last seven weeks, silver prices have seen a 6.18 per cent decline in London, translating into a 7.95 per cent fall in the local bullion markets, considering 0.64 per cent depreciation in the rupee (62.87 a dollar).

“The decline in silver prices is driven by expectations the Fed would taper its $85-billion monthly bond- and mortgage-backed securities purchases, in light of the strengthening economic activity---similar to factors influencing the gold market,” said a recent report by Thomson Reuters GFMS.

In the first 10 months this year, silver prices have averaged $24.51 an oz, a 20.7 per cent annual decline. GFMS forecast a full-year average price of $24.24 an oz. The trend is similar for gold, too. After hitting a four-and-a-half-month low of $1,243.08 an oz on Thursday and moving in a very narrow range, gold traded at $1,243.63 an oz in the London spot market on Friday. The last time gold prices fell to these levels was on July 8 ($1,237.07 an oz).

“Bears are expected to continue dominating the silver market, and this may pull gold prices, too, at least in the short term, primarily because of concerns of US Fed tapering. Despite indications of a recovery in the US economy, supported by US Fed Chairman Ben Bernanke for continuing bond purchase for now, apprehensions are an announcement on continuing monetary easing will be made in the next Fed meeting. This is weighing on bullion prices,” said Sugandha Sachdeva, head (metals, energy and currency) research, Religare Securities.

Religare forecast’s the first support level for gold at $1,200 an oz. On breaking this, however, prices may fall to $1,180 an oz. In rupee terms, however, the fall may be capped, owing to shortage of availability from official sources due to stringent import norms imposed by the Reserve Bank of India (RBI).

In rupee terms, silver prices are set to fall to Rs 42,000 a kg, a 42 per cent fall from the peak of Rs 73,000 a kg in 2011. Samson Pasam, senior technical analyst, Angel Broking, estimates gold prices to see strong support at $1,200 an oz (Rs 29,200/10g) for near-month delivery on the Multi Commodity Exchange.