Silver, gold slide in European trade

Silver was set for its largest one-day fall in six weeks on Tuesday after having hit fresh 31-year highs, while gold came under pressure from investor uncertainty over the likely course of US monetary policy. Spot silver fell earlier by as much as 4.9 percent to a session low of $44.63 an ounce, after having risen to $49.31 on Monday, its highest since touching $49.48 in January 1980.
High volatility and the expiry of US silver options added to the intensity of the decline, impacting gold, which fell back from Monday's record of $1,518.10 an ounce ahead of the outcome of the US Federal Reserve's policy meeting on Wednesday. The Fed is expected to indicate it is in no hurry to raise interest rates, while chairman Ben Bernanke will deliver the first regularly scheduled post-decision news briefing in the bank's 97-year history.
"There are quite a few things coming out in the next day or two - the FOMC and the GDP release. People are just taking profits on these markets around that event risk," said Standard Chartered analyst Daniel Smith. "The key thing for me is any indication that interest rates might rise."
Silver was last bid at $45.77 an ounce at 1400 GMT, compared with $46.90 late in New York on Monday, set for its biggest daily loss since March 15. Silver at-the-money implied options volatility has risen by over 35 percent in the last four trading days alone to hit its highest level since mid-November 2010.
"Silver is the most interesting," Standard Chartered's Smith said. "Silver is going to be very volatile over the next couple of weeks from a medium-term perspective, it will be a lot softer." Gold meanwhile was on course for a second daily decline, in spite of the weakness in the dollar, which usually acts as an incentive to non-US investors to buy the metal. The spot price was last down 1 percent at $1,494.00 an ounce, while US gold futures for June delivery were down 0.9 percent at $1,494.50.
However, gold's usual inverse relation to the dollar has been weakening consistently since mid-April, meaning the bullion price will derive less of a bounce from any softness in the US currency. "The rally has been strong, it's not surprising to see profit-taking ahead of the FOMC meeting," said Peter Fertig, a consultant at Quantitative Commodity Research. "Markets expect it will be a dovish statement from the US Fed, but there are worries about them ending (Quantitative Easing) ahead of time."
Traders say part of the reason for the volatility in gold and silver prices is activity related to options - contracts which give holders the right to buy or sell the underlying security at a fixed price in the futures. "There's been a rush to cover exposure to these contracts ahead of expiry (maturity)," a trader said. "It's been more pronounced in silver futures." Silver prices are still up about 50 percent so far this year after gains of more than 80 percent last year. Platinum was last down 1.2 percent at $1,797.24 an ounce from $1,819.30, while palladium was down 1.5 percent at $747.50 an ounce.