Silver down more than 5%, hits 33-month low

Silver made another steep fall on Wednesday, losing more than 5% of its value. The precious metal was hammered down by speculation over an earlier-than-expected Quantitative Easing deceleration, which according to Ben Bernanke should take place during the second half of the year.

On the Comex division of the New York Mercantile Exchange, silver futures for September delivery slipped more than 5%. The precious metal stood at $18.565 at 9:04 GMT, down 5.05% for the day. Prices fell earlier to $18.450, the lowest level since August 2010. Silver has been marking daily losses since the beginning of the previous week, except for Friday, settling the week 8.99% lower and recording a 7.42% daily loss on Thursday.

Silver, like all other dollar-priced commodities, trades inversely to the dollar, which was heavily boosted recently by positive U.S. economic data that is supporting Feds intentions to taper its monetary stimulus. Precious metals are used mainly as a hedging strategy against inflationary effects. Such can arise as a result of a loose monetary policy, like Quantitative Easing. However, last week U.S. economic data showed the inflation rate in the world’s largest economy was low and stable, which devalued the precious metals. Core CPI, which excludes the more volatile energy and food prices, rose only by 0.2% in May, compared to 0.1% in April and met projections. On an annual basis Core Consumer Price Index also met expectations and remained the same compared to May 2012 at 1.7%. CPI for May was even lower than anticipated and stood at 0.1%, below forecasts for a 0.2% increase.

This week, upbeat U.S. data kept on coming, causing the dollar to extend gains versus its major counterparts and push commodities down. The U.S. Commerce Department said yesterday that Durable Goods Orders stood at 3.6% for May, 0.6% higher than the 3% forecast, equaling April’s 3.6% revised reading. Core durable goods (Durable Goods Orders ex Transportation), which exclude the more volatile transportation items, outperformed expectations of a decrease to 0%, standing at 0.7%. Last month’s revised reading stood at 1.7%. Core Durable Goods ex Defense also exceeded anticipations, surging to 3.5%, compared to the 2.7% forecast and April’s 2.5% revised reading. Meanwhile, the S&P/Case-Shiller Composite-20 Home Price Index showed home prices jumped to 12.05%, surpassing 10.06% expectations and April’s 10.85% revised figure.

Meanwhile, the U.S. Census Bureau reported New Home Sales exceeded forecasts of a decrease to 0.460 million from last month’s 0.466 reading. May’s indicator unexpectedly rose to 0.476 million, supporting previous data for economic recovery.

The Conference Board said that Consumer Confidence in the U.S. reached a five-year high, going well above expectations. CCI stood at 81.4 for June, compared to 76.2 for the preceding month and surpassing projections of 75.

This caused the dollar to surge further and investors to shift direction towards riskier assets. The dollar index, which tracks the greenbacks performance against six major counterparts, extended gains on Wednesday, trading at 82.94 at 9:17 GMT, up 0.18% on the day. The gauge marked a 2.21% weekly gain last week after retreating during the preceding week by 1.06%.

Investors are now looking into the upcoming U.S. economic data, scheduled for Wednesday and Thursday. The final Q1 GDP reading is due at 10:30 GMT. It is expected to show no change compared to the same quarter last year, standing at 2.4%. Consumer Spending (Personal Consumption Expenditures) for Q1 will likely stand unchanged at 3.4%, compared to Q1 2012. Core Consumer Spending for Q1 should be at 1.3%, the same like last year. On Thursday, Personal Income, Personal Spending, Core Consumer Spending for May, Pending Home Sales and Initial Jobless Claims are expected to provide information whether the U.S. economy is reaching its recovery goals and remain on track with Fed’s expectations.