Gold and silver prices were recovering from an abrupt sell-off that hit markets early Monday after the death of Osama Bin Laden prompted a rally in the U.S. dollar and a decline in oil prices.
Gold (-GC) for June delivery was adding $6.50 at $1,562.90 an ounce at the Comex division of the New York Mercantile Exchange after losing as much as 2.5% to fall to $1,540.30 overnight. The spot gold price was still down $3.20, according to Kitco's gold index.
Silver (-SI) prices were shedding $2.11 AT $46.49 an ounce after plummeting 13%, bouncing off $42.20. The U.S. dollar index was falling 0.3% to $72.81, its lowest level since June 2008. The U.S. dollar index fell almost 4% in April but has yet to slip below its record low of $71.
The sell-off in gold and silver had been anticipated to some degree, given the recent surge in prices. Gold and silver soared 8.9% and 28.7% in April, respectively, and many traders had been looking for an overbought correction.
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"This had to happen," says Anthony Neglia, the president of Tower Trading. "All good bull markets give some back."
Neglia, who predicted that silver would hit $50 before $40 in April, categorizes himself as a glass-is-half-full trader. Silver "did have trouble getting through $50, but I still believe it can."
Silver is also being negatively affected by new margin requirements from the CME -- a 13% increase and the second in a week. It now takes $14,513 to buy one speculative futures contract of 5,000 ounces of silver versus $12,825. The move makes silver more expensive to buy and can trigger selling.
Silver "sold off on only 9,000 lots," says Mihir Dange, a trader at Arbitrage. "The last time margins were raised on silver, we (saw) it take a tumble as investors sell their silver to raise additional capital. This could be the healthy pullback that silver needed to get new long in and weak longs out."
The London and Hong Kong markets were closed Monday, which means thinner trading volumes, especially in the physical/spot market. Volume on the Globex market for gold was 75,660, compared with 157,177 Friday.
The death of Osama Bin Laden triggered an early rally in the U.S. dollar index as investors were cheered by a presumed reduced terror threat in the country. The stronger dollar pressured gold and silver, as the dollar-backed commodities become more expensive to buy in other currencies.
A possible positive for gold and silver, widely overlooked Monday, was the news that April manufacturing activity slowed in China. The news will most likely decrease pressure for the central bank to aggressively raise interest rates to combat inflation. Real interest rates are currently negative 2.15% -- a positive environment for gold -- and now look set to stay that way even longer.
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Gold mining stocks, a risky but potentially profitable way to buy gold, were mixed Monday. Barrick Gold (ABX) was falling 1.2% to $50.42, Newmont Mining (NEM) was 0.9% lower at $58.10, and Randgold Resources (GOLD) was losing 1.4% at $85.38. AngloGold Ashanti (AU) was gaining 0.8% at $51.39.
