One kilogram silver bars stacked at the Perth Mint Refinery in Perth, Australia.
(Bloomberg) -- Silver held losses after retreating from a record high, with a key technical indicator showing that a six-day rally has taken it into overbought territory. Gold edged down.
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The white metal traded almost two dollars below a record, after declining as much as 2.4% earlier in the session. Traders have been betting on continued supply tightness and expectations for another interest-rate cut in the US, a tailwind for non-yielding precious metals.
The 14-day relative strength index, however, showed that this recent speculative fervor may have gone too far, too fast. A reading of above 70 shows that the momentum is overheated. In broader markets, Asian stocks rose after demand at this year’s final auction of 10-year Japanese bonds was stronger than the 12-month average.
That drove a rebound in risk sentiment, which has steadied markets and triggered some profit-taking, said Saxo Bank A/S Head of Commodity Strategy Ole Hansen. He added that silver is seeing a “natural pullback,” but the broader uptrend remains intact as long as prices hold above $54.5 to $55 an ounce.
The rally in silver – which had risen more than 8% over the previous two sessions – has been fueled by bets on prolonged supply tightness. Since record amounts of the metal flowed into London to ease a historic squeeze in October, other trading hubs have come under pressure. Inventories linked to Shanghai Futures Exchange’s warehouses also recently hit their lowest in a decade.
“We have now moved on beyond rational momentum,” Daniel Ghali, senior commodity strategist at TD Securities, said in a note. “Demand expectations have declined across all categories, leaving investment demand as the primary driver today,” he said, citing weak physical trading in London’s over-the-counter market.
The gold-silver ratio, which indicates how many ounces of silver are needed to buy one ounce of gold, has also fallen to the lowest in more than a year — another indicator that silver has run ahead of itself. Traders sometimes see such extremes as turning points.
Bullion has also been supported by rising expectations that the Federal Reserve will deliver another interest-rate cut next week. Markets have priced in a near-certainty of a quarter-point reduction at the Fed’s final meeting of the year.
Silver fell 1.2% to $57.2887 an ounce as of 3:19 p.m. in Singapore. Gold edged down 0.4% to $4,216.46. The Bloomberg Dollar Spot Index was flat. Platinum fell, while palladium was slightly higher.
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