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Broad Commodities Pullback Affects Metals

Release Date: 
Thursday, May 5, 2011

Metals prices moved lower on Thursday, caught up in a broader commodities sell off on speculation that economic growth will slow as central banks seek to cool inflation by raising borrowing costs. The price of silver dropped as well, continuing its consolidation from record prices a week ago while gold pulled back from its highs earlier this week.

Gold prices were more resilient than silver with traders reluctant to take significant positions before a European Central Bank rate decision. Silver prices were affected by another hike in the margin requirements for U.S. silver futures that are intended to reduce speculation in the market.

VTB Capital analyst Andrey Kryuchenkov told that the weakness in the dollar and the continuation of a dovish stance at the Fed should mean that gold's retreat should be contained.  While there has been some easing in the geopolitical situation, "the macro data has been very weak," he said. "I think all of this supports the longer term uptrend in gold."

The European Central Bank President Jean-Claude Trichet said today the bank will monitor inflation risks "very closely," suggesting it may wait until after June to raise interest rates again. Markets were waiting to hear whether the ECB used the "strong vigilance" code words to signal a rate rise in June, after a hike in April.

(Sources: "Commodities Drop Most in Seven Weeks on Signals Economic Growth Is Easing," Bloomberg, May 5, 2011; "Gold Slips Toward $1,505, Silver Deepens its Dive," CNBC, May 5, 2011; "PRECIOUS-Silver down 2 percent after margin hike; gold steady," Reuters, May 5, 2011; "Is Soros Right to Get Out of Gold?" CNBC, May 5, 2011)

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