Silver fell sharply for a second straight session Tuesday and was set for its biggest two-day loss since December 2008 as speculators sold heavily after the US commodity exchange raised silver futures for a third time in the last seven days. After reaching a record high within a whisker of $50 last Thursday, silver has lost 12 percent when its failure to extend gains triggered heavy technical selling.
Silver's decline sent the gold/silver ratio to a three-week high at above 36 from below 32 last Thursday. "Silver has been, in the short term, overextended. Its divergence from its moving averages has been extreme," said Robert Lutts, chief investment officer at Cabot Money Management, which manages $500 million in client assets.
Spot silver fell 3.2 percent to $42.50 an ounce by 1:36 pm EDT (1736 GMT), having briefly moved higher in extremely choppy trade. On Monday, the metal notched its biggest one-day drop in 29 months. Despite silver's sharp pullback, it was still well above its 100- and 200-day averages.
US July silver futures fell nearly 8 percent to $42.525. On Monday, the metal extended losses after the July contract's settlement, and that explained the difference between spot's and futures' performances. Investors remained wary of a market in almost chronic surplus with high price volatility.
Some of this discontent has been reflected in the futures market, where COMEX speculators cut their long positions by the biggest amount in two years last week, while ETF holdings of silver fell by nearly 4 million ounces. Spot gold eased 0.3 percent to $1,539.90 an ounce. US June gold futures fell 1.1 percent to $1,540.50. The death of al Qaeda leader bin Laden accelerated spot gold's drop to a session low of $1,534.15 from a record high of $1,575.79 on Monday.