clock menu more-arrow no yes

Filed under:

Silver futures decline after earlier surge

Silver futures fell on profit-taking in thin trading Friday after surging earlier in the week on news that investor Warren Buffett's Berkshire Hathaway Inc. owns a huge stock of the metal.

On other markets, grain and soybean futures were lower on poor export prospects.Despite Friday's drop in price, silver futures still managed to gain 94 cents for the week and rise above $7 for the first time since July 1988. Silver for March delivery settled 22 cents lower Friday at $7.060 a troy ounce.

Despite the profit-taking, analysts said the silver market remains tight. On Thursday, stocks in Commodity Exchange warehouses fell 1.9 million ounces to 101.1 million ounces, their lowest level since the 99.7 million ounces on hand April 15, 1985.

Although silver stocks at the Comex have shrunk to their lowest levels in over 12 years, traders generally ignored the news.

Tim Porter, an analyst with Refco Inc., said most of the selling was done by investment funds.

"The selloff underscored a sincere desire to get out of the market with big profits," he said.

On Tuesday, Berkshire Hathaway announced it owns 129.7 million ounces of silver, sending a market that was already rising on tightening supplies soaring. Berkshire Hathaway has accepted delivery on 87.5 million ounces of silver and is awaiting the delivery of 42.2 million ounces by March 6.

Berkshire Hathaway has said it was willing to defer delivery upon payment of a fee.

The London Bullion Market Association has extended the period in which the silver can be delivered.

The action by the association has eased the one-month lease rates, the interest rates for borrowing silver. Investors sell borrowed silver or gold on the chance its price will fall. If the price falls, they buy it at the lower price, profiting on the difference and returning the metal to the lender.

Producers also use borrowing to lock in prices for precious metals. They then deliver the metal they are mining to the lender when the loan is due.

Because the demand for silver has become so strong, the leasing rates had climbed as high as 70 percent to 80 percent on Thursday. The usual range is 1 percent to 2 percent. The rates were around 40 percent to 50 percent on Friday.

Silver prices have been rising since July 1997, when a troy ounce cost $4.60. A major factor for the price rise is that demand has been outpacing supply.

Silver is used not only in jewelry but also in photographic film, electronic components and by the automotive industry.