Silver futures capped the longest slump in seven months on mounting speculation that the Federal Reserve will act to reduce economic stimulus, cutting demand for precious metals as alternative assets.
Fed Bank of Atlanta President Dennis Lockhart said yesterday that talks on a cut in bond purchases by the central bank “could well take place” next month. Even as industrial consumption for the metal improves, “surplus supply and the vulnerability of investor demand will introduce substantial downside risks to silver prices,” Barclays Plc said Oct. 31.
Silver has tumbled 32 percent this year, heading for the biggest annual drop since 1981 and making it the largest decliner behind corn among the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index. Prices have dropped amid concern that the Fed was ready to start slowing its $85 billion in monthly bond purchases.
“The market has come back to concentrating on Fed tapering,” Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview. “Prices are declining, and we may hit a point where you start getting mine closures. But you would need to see a significant round of closures before we find long-term price support.”
Silver futures for delivery in December dropped 1.6 percent to settle at $20.442 an ounce on the Comex in New York. Prices fell for five straight sessions, the longest slump since April 4.
The slump in silver, mostly a byproduct in the extraction of other metals, may crimp profit for mining companies. Shares of Coeur Mining Inc. (CDE:US), which got about 61 percent of its revenue from the metal last year, slid 55 percent this year in New York trading.
Prices still rebounded from a 34-month low of $18.17 in June as the slump attracted buyers of physical metal. Sales of American Eagle silver coins by the U.S. Mint since the start of the year have surpassed the annual record set in 2011.
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