Silver retreats from record high on concerns of overheating

Silver traded at around $57.45 an ounce, more than a dollar below the all-time peak reached in the previous session.

Silver retreated from a record high, with a key technical indicator showing that a six-day rally has taken the white metal into overbought territory. Gold also edged down.

Silver traded at around $57.45 an ounce, more than a dollar below the all-time peak reached in the previous 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, shows that this recent speculative fervor may have gone too far, too fast. A reading of above 70 shows that the momentum is overheated.

“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 rally in silver – which rose 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 recently hit their lowest in a decade.

Silver and gold have 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% to $57.4245 an ounce as of 8:28 a.m. in Singapore. Gold edged down 0.2%. The Bloomberg Dollar Spot Index was up marginally, while palladium and platinum traded lower.