Reason for Silver Price Drop April 30 2011

Reason for Silver Price Drop April 30 2011 : Ahead of the monthly labor market data that is scheduled for release on Friday, initial claims data from the government adversely affected the markets as it reported claims had risen to their highest level in eight months. According to the Labor Department, initial claims increased to 474,000 for the week ending April 30, 2011, against the expected decrease to 407,000, after increasing to 431,000, the revised level for the previous week.

The 4-week moving average increased to 431,250, the highest level since November, from the previous week’s revised average of 409,000. Seasonally adjusted insured unemployment from the prior week, ending on 04/23, was 3,733,000, an increase of 74,000 from the preceding week's revised level of 3,659,000. source zacks.com...

The value of all 24 commodities tracked by the S&P GSCI index was about $805 billion on May 6, compared with $891 billion on April 29, according to data compiled by Bloomberg on the number of outstanding contracts and prices of futures closest to delivery. Combined holdings of exchange-traded products backed by precious metals fell to $119 billion from $132 billion, the data show. source businessweek.com...

The biggest slump for silver since 1983 may not be over as the Comex exchange in New York makes it 84 percent more expensive for speculators to trade the metal, triggering an exit by investors.

The minimum amount of cash that must be deposited when borrowing from brokers to open new positions will rise to $21,600 per contract after May 9, CME Group Ltd., Comex’s owner, said yesterday. That’s up from $11,745 two weeks ago. Open interest in futures has tumbled about 15 percent since the exchange began raising margin requirements on April 25.

Prices may drop an additional 14 percent to $34 an ounce by the end of next week from yesterday’s closing price, according to the average forecast in a Bloomberg News survey of six analysts. Silver has more than doubled in the past year as record-low U.S. borrowing costs and a slumping dollar prompted investors to buy precious metals as alternative assets.

“You’re talking about a very volatile market, a very significant run-up in a very short period of time,” said Michael Cuggino, who helps manage $12 billion at Permanent Portfolio in San Francisco. “It went too high too fast, and exacerbating it on the downside is the increased margin requirements.”

As of April 29, the metal had soared 57 percent in 2011, the most among the 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index. In the past four sessions, silver plunged 25 percent, the most since February 1983. The slump trimmed this year’s advance to 17 percent, trailing gains by gasoline, coffee and gasoil.

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