Silver takes a dive, then sees a rebound
Bargain hunting gives silver a boost after a nasty dive in overnight markets. But worries about rising interest rates and a possible U.S. debt downgrade gives the metal a boost.
Had that level held, the result would have been the lowest price since August 2010. The sell-off was so extreme that the CME Group, which operates the New York Mercantile Exchange where silver is traded, halted trading in the metal four times overnight.
But silver -- and gold (-GC) -- surged in late trading, settling at $22.58 an ounce, up 23 cents. Gold, which had fallen to as low as $1,336.30, settled at $1,384.10, up $19.40.
Both were surging in electronic trading late Monday -- a signal perhaps that the metals have bottomed after severe slumps this year.
The technical reasons for the early selling were this, said Phil Streible, a broker with Chicago commodity firm R.J. O'Brien & Associates. Lots of stop-loss orders hit the market late Sunday from traders looking to limit their losses, after silver finished at $22.352 an ounce on Friday. That had left the metal down 5% for last week.
And in time on Monday, the stop-loss orders worked their way through the market. At the same time, short-sellers started to take their profits, which meant they were buying silver to cover their positions. That was good for prices. And then all those investors who had been sold out earlier started to reestablish their positions, adding more support to prices.
Still, silver has been a terrible investment this year. Even with Monday's rebound, it's down 25.3% this year. Gold is down 17.4%.
There were two bits of news that may have given prices some additional fuel to let silver and gold recover.
First was a comment from Charles Evans, president of the Chicago Federal Reserve Bank that the Federal Reserve might slow or stop its bond-buying campaign if jobs gains continue into the fall. That raised fears that interest rates might be headed higher. The 10-year Treasury yield was 1.965% on Monday, up from Friday's 1.949%.
And Moody's Investors Service said it may downgrade U.S. debt if Congress and the White House fail to act on the government's budget problems in 2013.
The reports sapped a small rally for stocks, and the major indexes finished the day slightly lower. The Dow Jones industrials ($INDU) fell 19 points to 15,335. The Standard & Poor's 500 Index ($INX) dropped 1 point to 1,666, and the Nasdaq Composite Index ($COMPX) slipped 3 points to 3,496.
Silver and gold have been whacked hard this year, as big investors in exchange-traded funds, bars and coins as well as other vehicles that invest in precious metals have concluded there's more money to be made in stocks.
As Michael Widmer, head of metals market research at Bank of America in London told Bloomberg Television, many investors also been repeatedly disappointed that resumption of inflation after the 2008 market crash hasn't materialized.
The recent selling has more than offset higher demand for physical gold and silver.
Streible said his firm doesn't believe silver will remain in the low $20s for long. Still, he would like silver to move up at least $1 or $2 off Monday's settlement to be able to say a bottom has set in.
Silver didn't trade below $25 between the late summer of 2011 and April. On the other hand, silver didn't trade above $10 between late 1988 and 2006.
Ten of of the 30 Dow stocks were higher, along with 213 S&P 500 stocks and 22 stocks in the Nasdaq-100 Index ($NDX). The index, which tracks most of the largest Nasdaq stocks, fell 8 points to 3,021.
Yahoo (YHOO), which announced it will buy blogging site Tumblr for $1.1 billion, rose 6 cents to $26.58. The stock is up 34% as CEO Marissa Mayer continues her efforts to rebuild the brand.
A big question for investors on Tuesday is if the market can continue its remarkable winning streak. The major averages had seen gains on 18 straight Tuesdays. The last time stocks moved higher at least 18 times on a Tuesday was 1968, when there were 24 Tuesdays in a row with gains.
Earnings are due from Home Depot (HD), Best Buy (BBY), Medtronic (MDT) and Red Robin Gourmet Burgers (RRGB).
There are no major economic reports.
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