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Silver Plummets 27% in Week, Most Since 1975; Gold Futures Gain

Silver Set for Worst Weekly Drop Since 1975 Amid Rout
Silver is weighed in a laboratory in Zacatecas, Mexico. Photographer: Susana Gonzalez/Bloomberg

Silver futures fell, capping the biggest weekly plunge since at least 1975, on mounting sales by investors following increases in Comex margin requirements. Gold rebounded, halting a three-day slide.

Silver tumbled 27 percent this week after CME Group Ltd., the Comex owner, boosted the cash amount needed for a speculative position by 84 percent in two weeks. Yesterday, holdings of the metal in exchange-traded products dropped the most in three years. Gold had the largest weekly drop in a year.

“At the close of business on Monday, silver’s got another bump in margins,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “Gold doesn’t have the technical breakdown that silver’s had. All gold has to do is hold its value when everything else crumbles around it.”

Silver futures for July delivery fell 95.3 cents, or 2.6 percent, to settle at $35.287 an ounce at 2:11 p.m. on the Comex in New York. On April 25, the price reached $49.845, a 31-year high.

The minimum amount of cash that must be deposited when borrowing from brokers to trade will rise to $21,600 a contract after May 9, CME Group said on May 4. That’s an increase from $11,745 two weeks ago.

“The higher cash-margin requirements simply cannot be met by all participants, and when a trader can’t make margin, the underlying security is often liquidated,” Lachlan Shaw, a commodity analyst at Commonwealth Bank of Australia, said in a report. “Further silver-price falls are possible.”

ETP Holdings Tumble

Silver assets held in ETPs tumbled 3.6 percent to 14,546.99 metric tons yesterday, the biggest decline since Jan. 2, 2008, while gold holdings fell 0.7 percent to 2,057.08 tons, the biggest drop in three months, according to data compiled by Bloomberg.

The liquidation in precious metals has been “egregiously violent,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter. “Speculative fervor needed to have a bit of cold water splashed in its face.”

Gold futures for June delivery rose $10.20, or 0.7 percent, to $1,491.60 an ounce. Yesterday, the price touched $1,462.50, the lowest since April 14. This week, the metal dropped 4.2 percent, the most since May 2010.

“Gold below $1,500 is a line in the sand,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “There’s a scramble for gold because a lot of people don’t want to miss the move up.”

The metal reached a record $1,577.40 on May 2.

Barclays Capital recommended buying gold after the 4.9 percent drop in the previous three days.

Palladium futures for June delivery rose $5.50, or 0.8 percent, to $716.30 an ounce on the New York Mercantile Exchange. This week, the metal dropped 9.6 percent, the most since July.

Platinum futures for July delivery gained $8.20, or 0.5 percent, to $1,786.40 an ounce. This week, the price dropped 4.2 percent, the most since November.

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