Silver rose 1 percent Friday, snapping a five-day losing streak that cut prices by almost a third, while gold rose after encouraging U.S. jobs data triggered a broad bounce in beaten-down commodities.
Silver suffered the biggest sell-off since the 1980 collapse in prices following the Hunt Bothers squeeze, triggered by a succession of margin hikes that nearly doubled costs. But dealers said the 35 percent slide from last week's record high was overdone, an excited response in an overheated market.
Precious metal prices rallied early in tandem with other markets after data showed private-sector hiring hit a five-year high in April. But metals pared gains when the dollar surged against the euro after a German media report suggested Greece had raised the possibility of leaving the euro zone. Greece denied the report.
"There is no reason why silver should have taken such a big hit. It's all margin-related," said COMEX floor option trader Dominic Cognata. "At some point, it becomes a buying opportunity for people who missed out on the last silver rally to get back in right now."
Spot silver initially traded as low as $33.22, its lowest level since Feb. 25, pressured by follow-through selling after it plunged 12 percent on Thursday. It was up 2 percent at $35.35 by 1:43 p.m. EDT (1743 GMT) .
Investors also bought bullish silver options as "things have gotten a lot cheaper over the last week," Cognata said.
COMEX OPEN INTEREST ROSE
Open interest in U.S. COMEX silver futures rose 3 percent Thursday even as prices fell sharply, a sign the market remains vulnerable to further selling, traders said.
The price of the U.S. June silver contract fell as much as 13 percent on Thursday, leading a broad decline in the commodities sector. On Friday, June was down over 2 percent.
"There was liquidation, but then there were new people getting in and going with the momentum trade" to short sell silver, said COMEX options floor trader Jonathan Jossen.
Silver is heading for its worst week since the Hunt Brothers collapse in 1980, after shedding 25 percent this week as higher futures margin requirements prompted speculators to unwind bullish positions.
Silver has slumped around 35 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.
Investors rushing to exit the market trimmed their positions in the iShares Silver Trust, the world's biggest silver-backed exchange-traded fund, which suffered outflows of more than $1 billion in the week ended Wednesday. It was its worst one-week outflow ever and it also posted heavy losses due to the slump in silver prices.
The commodities sector was broadly higher after the positive U.S. jobs report which suggested the economic recovery would regain speed this quarter after stumbling in the first three months of the year. That view suffered setbacks earlier this week as other reports pointed to a slowing in the labor market.
GOLD UP ON PHYSICAL BUYING
Gold also bounced on Friday as jewelers, physical buyers and bargain hunters, especially in Asia, took advantage of lower prices.
Spot gold gained 1.5 percent to $1,494.50 an ounce, still sharply below a record high of $1,575.79 posted on May 2. COMEX June gold futures gained $13.20 to $1,494.60.
Indians, the world's biggest buyers of bullion, took gold's latest tumble as another incentive to buy on Akshaya Tritiya, one of the major gold-buying festivals, and as India's wedding season gathered pace.
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