Silver prices decline 7% in a day

Open interest falls nearly 20 per cent on profit booking.

Silver prices crashed by Rs 5,150 a kg in Mumbai market after rising to an all-time high yesterday on profit booking. Even in futures market, there was heavy profit booking as the contract will expire next week. Open interest fell nearly 20 per cent in a day showing the extent of profit booking.

Silver in the spot market declined 6.86 per cent at Rs 69,870 a kg after having risen to Rs 75,020 a kg on Monday.
 

CRASH COURSE
All data is monthly average and includes all silver products

MonthMCX silver OI (in kg)MCX silver
turnover(Rs cr)MCX silver volume
(in kg) 10-Apr80,456.53495.721,79,877.53 10-May73,778.58626.652,18,011.98 10-Jun80,727.626512,22,722.81 10-Jul88,364.81582.272,02,053.91 10-Aug1,20,282.86672.672,28,364.30 10-Sep1,82,616.06752.672,35,177.26 10-Oct1,50,204.781,174.683,33,405.15 10-Nov1,28,710.051,556.723,87,652.52 10-Dec91,148.371,314.262,96,633.89 11-Jan1,33,867.781,530.643,48,272.93 11-Feb1,33,816.821,729.533,67,364.63 11-Mar96,581.812,104.013,91,734.31 Apr-11*1,10,375.153,157.235,00,389.51 * Till 1700 hrs IST April 26                                                                   Source: MCX 
Compiled by BS Research Bureau

On MCX, silver had touched a high of Rs 73,600 a kg and on Tuesday hit a low of Rs 66,387 a kg. Open interest of silver on MCX, which is world’s biggest exchange for silver, dropped 20 per cent from 1,243,301 kg yesterday in day session to 1,043,259 kg on Tuesday. The turnover also fell to Rs 21,241 crore on Tuesday from yesterday’s Rs 30,002.9 crore.

Daily average volumes on MCX were 179,877 kg in April 2010, which increased to 459,635 kg this month.

In international market, silver declined to $46 an ounce, after it hit an all-time high in Monday’s trade at $49.80 an ounce. In morning, silver was trading at below $45 an ounce.

The open interest in silver, which was on a rise in the last 15 days, saw a dramatic fall on Tuesday as futures began to crash. Open interest has moved up 34 per cent in the last one year to 108,114.7 kg on the back of rising future prices.

Technically, the RSI index of silver was above 85 for 18 days indicating that the metal was overbought, so profit booking was expected at these levels.

Kunal Shah, head of research at Nirmal Bang Commodities said, “Silver has hogged all the limelight in the last two quarters as we have seen a sharp rally in prices from $21 to $46.27 an ounce. It goes without saying that bears are trapped in short positions but the coming times may turn the tables on the bulls.” However, going forward, he added: “We expect the ongoing rally to fizzle out at around $48-$50 an ounce and then correct to $37.5 an ounce and $31.4 an ounce on the downside. Our view remains firmly in place as long as silver prices do not close above $56.7 an ounce.”

“The fall today was so sharp that even the new entrants, who entered the market to take advantage of the rising silver futures, have moved out of the market on profit booking,” said Ajay Kedia of Kedia Commodities. He advises against taking fresh positions in the market at the moment.

Market will get direction only after the Open Market Committee meeting of the US Federal Reserve, which is scheduled for Tuesday and Wednesday and the outcome will be known on Wednesday night.