After pulling down from a record high, silver (SI=F) held losses. A crucial technical indicator indicated that a six-day rise had pushed it into overbought territory. Gold (GC=F) edged lower.
The white metal traded over two dollars below a record, after dropping as much as 2.4% earlier in the day. Traders have been counting on sustained supply tightness and prospects for another interest-rate cut in the US, a tailwind for non-yielding precious metals.
However, this current speculative zeal may have gone too far, too quickly, according to the 14-day relative strength index. The momentum is overheated if the reading is higher than 70. In global markets, Asian stocks climbed as demand at this year’s final auction of 10-year Japanese notes was better than the 12-month average.
According to Ole Hansen, Head of Commodity Strategy at Saxo Bank A/S, this led to a recovery in risk sentiment, which has stabilized markets and encouraged some profit-taking.
Silver is experiencing a "natural pullback," he continued, but as long as prices stay above $54.5 to $55 an ounce, the overall upswing will continue.
Bets on sustained supply tightness have spurred the silver rally, which has increased by more than 8% during the last two days.
Other trading centers have been under strain after large supplies of the metal entered London in October to relieve a severe squeeze.
Additionally, inventories associated with the warehouses of Shanghai Futures Exchange recently reached their lowest point in ten years.
“We have now moved on beyond rational momentum,” Daniel Ghali, senior commodity strategist at TD Securities, wrote in a note.
“Demand expectations have declined across all categories, leaving investment demand as the primary driver today,” he said, citing sluggish physical trading in London’s over-the-counter market.
The gold-silver ratio, which measures how many ounces of silver are needed to acquire one ounce of gold, has also plummeted to the lowest in more than a year another indicator that silver has run ahead of itself. Such extremes can occasionally be viewed by traders as turning points.
Growing anticipation that the Federal Reserve would lower interest rates once more next week have also bolstered bullion. The near-certainty of a quarter-point cut at the Fed's year-end meeting has been priced in by markets.
As of 3:19 p.m. in Singapore, silver has dropped 1.2% to $57.2887 per ounce. Gold fell 0.4% to $4,216.46. The Bloomberg Dollar Spot Index was unchanged. Palladium was somewhat higher while platinum declined.
