If you're wondering why silver prices fell sharply Monday, it looks like the answers lie in Asia.
Silver prices staged a sharp recovery Monday after volatile trading that took the white metal tumbling 9% in 10 minutes to $20.25 an ounce, a level not seen since 2010.
The steep selloff followed a spike in the Japanese yen against the dollar. Precious metals traders surmise investors were forced to sell silver to cover losses in the currency market. The result was a rash of automated sell orders.
Indeed, the effect has so extreme and rapid, the Chicago Mercantile Exchange halted silver futures trading four times to restrain volatility and rein in excessive price movements, a move known as Stop Logic. Because volumes for silver are lower than for gold, they are more prone to sharp swings, up and down.
Data shows more than 3,000 contracts in Comex silver futures sold in just 20 minutes during early Asian trading. Standard Bank in Tokyo confirmed an unidentified investor sold a sizable position of silver Monday morning.
"The drastic move lower happened pretty much after the CME's electronic platform Globex opening," Afshin Nabvi, MKS head of trading told Reuters.
"The move was exacerbated by the fact that it happened when liquidity was very thin in Asian trade," he continued. "If the same happened in London or New York hours, the size of the liquidation might have been cushioned by higher volumes."
Silver Prices: The Yen Factor
The Japanese yen soared after Economy Minister Akira Amari cautioned about damage to Japan's economy should the country's currency continue to wane. Silver sank 4% on the Tokyo Commodity Exchange after the comments.
"The slump of silver is mainly due to fund outflows from precious metals to yen as some investors are betting on an upturn of the Japanese currency as well as [a] continued rally in the equities market in Japan," Yu Kam-Wing, an executive director at Henfin Ltd, a Hong Kong-based gold trader told The Wall Street Journal.
Investors were quick to flee precious metals in favor of the yen, betting on a recovery in the Asian nation. On Monday, the Japanese government boosted its assessment of its domestic economy as fresh data revealed a pickup in exports--thanks to the yen's steady slide since October.
While the country's recovery remains anemic at best, Japan's leaders are determined to end 15 years of deflation and generate sustainable economic growth. Ambitious goals run the gamut from doubling farm incomes and tourists visits to tripling the value of transport and power generation exports.
Silver Prices Await Fed's Minutes
Precious metals investors are also anxiously awaiting remarks from Ben Bernanke. On Wednesday, the U.S. Fed Chairman testifies before Congress and will share his economic outlook.
As a result, investors have been shedding silver stakes. Holdings of the iShares Silver Trust (NYSE: SLV), the largest silver exchange-traded fund, fell 187.7 tons last week to 10,253 tons, the largest weekly outflow since the start of May and the lowest level since mid-January.
However, silver's selloff has spurred a frenzied buying in physical silver. Investors continue to take advantage of the two-and-a-half year low and 30% year-to-date decline in the white metal causing depleted inventories at dealers nationwide.
Silver Prices Rebound
Among heavy short covering, bargain hunting, a weaker U.S. Dollar Index, higher crude oil prices and a flight to safety, silver prices rebounded Monday.
Also providing a lift was a Moody's report warning of a possible U.S. debt downgrade if the U.S. fails to act on its budget problems this year. Safe haven silver buying ensued.
Comex July silver prices closed near session highs, up $0.31, at $22.67 an ounce. Meanwhile, New York spot silver jumped 2.07%, or $0.46, to $22.82 an ounce in afternoon trading.
Money Morning's Shah Gilani joined FOX Business' "Varney & Co." today to talk about gold and silver prices - and a promising stock with 10% yield. Get the full story here.
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The Wall Street Journal:
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FOX Business News:
CME Halted Silver Trading 4 Times Sunday as Prices Slid 9%