Gold extended gains on Monday on a weaker dollar, after suffering its worst weekly loss since 2009, while US silver futures rose nearly 3 percent as investors took advantage of last week's free fall in prices to enter the market.
Precious metals were supported by a softer dollar, which edged down 0.4 percent against a basket of currencies after hitting a 2-1/2-week high on Friday following unexpectedly strong US employment numbers and a media report on the possibility of Greece quitting the euro zone.
"It is too early to say that silver has started to rebound, as it is still stuck in a descending channel. What will eventually decide the price trend in precious metals is the US monetary policy," said a Tokyo-based trader. COMEX silver rose by as much as 2.9 percent to $36.31, after plunging 27 percent in the previous week, its biggest weekly drop since 1980. It stood at $35.75 by 0606 GMT.
Spot silver edged up 0.2 percent to $35.66 an ounce. It dropped 25 percent last week.
"From a medium-to-long term perspective, $35 is a reasonable level to buy," the Tokyo-based trader said, adding that the return of Japanese investors after the Golden Week holiday was also propping up silver prices.
TOCOM silver jumped more than 4 percent to 94.3 yen per gram, equivalent to $36.4 an ounce, before paring gains to 92.40 yen. On this week's data schedule, the United States is due to release its April consumer price data, which may shed light on the future moves in monetary policy by the central bank, as market speculation mounts on what the Federal Reserve might do after the stimulus package rolls off in June.
As silver prices tumbled last week, holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust, dropped to a six-month low of 10,253.75 tonnes by Friday. The ETF suffered a record outflow of $1 billion in the week ended on May 4, feeding silver's free-fall last week. In line with the decline of investment interest in the ETF, speculators scaled back the bullish bets on COMEX silver futures and options to the lowest level since early February.
"Short-term we would not be surprised if silver recovered some of its losses, and perhaps even targeted $38 an ounce," said Heraeus, a Germany-based precious metals and technology company, in a research note. "Longer-term we remain sceptical and feel that the price is still overdone and prices well below the $30 an ounce mark would not astonish us." Spot gold rose by half a percent to $1,501.50 an ounce, recovering from a 4.5 percent fall last week. COMEX gold gained 0.7 percent to $1,501.40. Technical analysis suggested that gold may fall to $1,462, said Wang Tao, a Reuters market analyst.