Metals Stocks

May 4, 2011, 6:47 p.m. EDT · CORRECTED

Silver, gold hit by report of Soros selling

Gold sees biggest one-day percentage drop since March

By Claudia Assis and Polya Lesova, MarketWatch

Corrects closing price of silver to $39.39 an ounce.

SAN FRANCISCO (MarketWatch) — Silver and gold futures fell Wednesday on a newspaper report that high-profile investors, including George Soros’ hedge fund, have sold precious metals, with silver still reeling from an exchange decision to increase trading requirements.

Silver for July delivery /quotes/comstock/21e!f1:si\n11 SIN11 -0.86%  closed lower by $3.20 an ounce, or 7.5%, at $39.39 an ounce on the Comex division of the New York Mercantile Exchange. That was the lowest close for a most-active contract since April 6.

Gold, silver drop could help stocks

As gold and silver tank, assets besides commodities can hedge against inflation, according to David Goerz of HighMark Capital Management, who recommends high-quality stocks with a dividend yield, as well as small caps. Laura Mandaro reports.

The contract had tumbled more than 7% in the previous session, posting the largest one-day drop since December 2008. It also posted a sharp loss on Monday and has fallen nearly 20% since Friday.

“It’s almost like a bungee-jump cord, you don’t know when it’s going to bounce after a free fall like that,” said Adam Klopfenstein, senior market strategist with Lind-Waldock in Chicago.”It’s a self-fulfilling prophesy.”

Traders were also digesting a Wall Street Journal report that said George Soros’s hedge fund, a firm operated by investor John Burbank, and some other investors have sold much of their gold and silver because there’s less chance of deflation. Read more about the fund selling.

A spokesman for Soros declined to comment.

“Well-heeled” investors leaving the trade “put fears in people’s minds,” Klopfenstein said.

Unlike gold, bought by large investors, funds and central banks, silver is mostly dominated by individual investors.

Silver could trade as low as $36 an ounce in the next few weeks, he added.

Tips for getting in on gold

Gold is a volatile investment with its share of risks, but there are ways to get in on the metal now if you believe it's going still higher.

The Journal reported that the selling pressure threatened the nine-month rally in precious metals but added that some prominent investors, such as hedge-fund manager John Paulson, have continued to favor gold and silver.

Silver futures were also under pressure following Comex operator CME Group’s /quotes/comstock/15*!cme/quotes/nls/cme CME +0.44% latest increase in margin requirements, which came into force after the close of trading Tuesday.

The exchange had increased margin requirements twice last week. As the stakes of trading a futures contract rose, some small investors have been forced to liquidate in the past few days, analysts have said.

Gold also declines

Gold for June delivery /quotes/comstock/21e!f:gc\m11 GCM11 +0.09%  fell $25.10, or 1.6%, to $1,515.30 an ounce on Comex in the biggest one-day percentage drop since March 15. The metal dropped 1.1% on Tuesday.

Goldman Sachs analysts, though, said in a recent note that gold remains “one of [their] preferred commodities,” with price trends still skewed to the upside.

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“Uncertainty in currency markets and medium-term inflationary risk are likely to support investment demand,” according to Goldman. “Recent high-profile investments by prominent institutions ... confirm that institutional money is now adding to an investment trend that has hitherto been dominated by retail money.”

Geopolitical tensions in North Africa and the Middle East were also supporting gold prices, according to Goldman Sachs.

The broader suite of metals declined Wednesday. Copper for July delivery /quotes/comstock/21e!f:hg\n11 HGN11 +0.10%  fell 12 cents, or 2.8%, to $4.13 a pound.

Also, gold’s status as a currency alternative to the dollar was boosted by data showing Mexico’s central bank had bought 93.3 metric tons of gold in February and March, increasing its gold reserves to 100.15 metric tons. Read more on Mexico’s gold purchaes.

Metals garnered some support from a weaker dollar. The dollar index /quotes/comstock/11j!i:dxy0 DXY -0.03% , which measures the greenback against a basket of six currencies, traded at 72.972, from 73.127 in late North American trading on Tuesday. Read more about currencies .

$ 288.50
+1.27 +0.44%
Volume: 494,549
May 4, 2011 7:32p
$ 1,516.60
+1.30 +0.09%
Volume: 4,153
May 4, 2011 10:08p
413.80 ¢
+0.40 +0.10%
Volume: 1,719
May 4, 2011 10:06p
-0.02 -0.03%
Volume: 0.00
May 4, 2011 10:18p

Claudia Assis is a San Francisco-based reporter for MarketWatch. Polya Lesova is chief of MarketWatch’s London bureau. Virginia Harrison in Sydney contributed to this report.

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