Silver slides more, bargain hunters help gold

LONDON: Gold bounced on Friday as bargain hunters entered the fray, but silver slid to a two-month low on selling sparked by higher margin requirements and expectations of a stronger dollar.

Spot gold was bid at $1,481.39 a troy ounce at 1136 GMT from $1,471.70 late in New York on Thursday when it saw $1,462.40 an ounce, its lowest since April 14. It is down about $100 since a record high of $1,575.79 hit on May 2.

"At these lower levels, we will see interest from bargain hunters," said David Wilson, analyst at Societe Generale.

Spot silver earlier touched $33.49, the lowest since February 28. Prices of the industrial precious metal plunged 12 percent on Thursday, its biggest one-day decline since October 2008. It was last bid at $33.83 from $34.67 on Thursday.

Silver has slumped about 30 percent since touching a record high of $49.51 an ounce on April 28. A major factor behind the sell-off was higher margins for silver traded on the Chicago Mercantile Exchange Group, which raises trading costs.

COMEX June gold futures were up 0.2 percent at $1,485.1 per ounce and silver was down 4.6 percent at $34.58 an ounce.

"Investors are still closing their long silver positions on futures and in the physical," a precious metals trader said. "The dollar looks strong, it looks as if the tide has turned, at least for the short term."

He added there was some nervousness ahead of data on US employment later on Friday, which could shed light on the health of the world's largest economy and the future direction of the dollar.

The dollar started its ascent on Thursday after comments from European Central Bank President Jean-Claude Trichet suggested euro zone interest rates were unlikely to rise next month -- keeping steady the interest rate differential against the dollar.

A higher US currency makes dollar-priced commodities more expensive for holders of other currencies.

PREPARATION

A higher dollar combined with worries about the health of the global economy have hit commodity prices across the board.

"Gold and silver were pulled down by dollar strength and big declines in oil prices," HSBC said in a note.

Precious metals, particularly gold, are used by investors to protect their portfolios against inflation, often triggered by rising oil prices.

However, oil prices tumbled as much as 5 percent on Friday, after a 10 percent crash the previous day on fears about the strength of global economic recovery.

Alongside oil, investors are keenly watching monetary policy in the United States.

"There is some concern about changes in interest rate differentials and the fortunes of the dollar. Silver has borne the brunt of that," said Michael Lewis, head of commodities research at Deutsche Bank.

Investors rushing to exit the market trimmed their positions in the iShares Silver Trust, the world's biggest silver-backed exchange-traded fund, by more than 1 percent after a 5 percent decline the previous day. Holdings stood at 10,268.92 tonne by May 5, the lowest since early November.

"My sense is precious metals will stabilise," Lewis said. "The market does need to worry about US Treasury buying, dollar strength, but probably more at the end of the year when the Fed starts preparing the market for rate increases."

Spot platinum was at $1,787.49 an ounce from $1,758.95 on Thursday and palladium was at $713.97 from $707.08 an ounce.