Quick overview

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Silver declined as investors prepared for the annual rebalancing of commodity indexes, which will involve the sale of futures contracts worth billions of dollars over the next few days. Gold stabilized, reversing earlier losses. After falling nearly 4% in the previous session, the white metal dropped as much as 5.5%.

 

Passive tracking funds will sell precious metals futures starting Thursday to align with the new weightings mandated by the indexes

This routine process has become more significant for gold and silver following last year’s explosive rallies. Amid heightened volatility, silver- backed ETFs experienced their largest one- day withdrawal since October on Wednesday. Regarding Citigroup Inc., silver is more susceptible to index rebalancing than gold. It is estimated that $6. 8 billion worth of silver futures, approximately 12% of open interest on Comex, may be sold to meet requirements.

The trading to rebalance the index evenly spread between the fifth and ninth business days typically follows the Bloomberg Commodities Index roll period, which occurs from the sixth to the tenth business day of the year. A note from JPMorgan Chase and Co., dated December 12, states that both metals experienced a similar index selloff last year without significantly affecting the market. However, the bank notes that the amount of silver needed to be sold this year is greater.

Analysts remain generally optimistic after gold achieved its best annual performance since 1979. Last year’s record- breaking rally was supported by increased central bank purchases and inflows into bullion- backed exchange- traded funds.

Prices were also boosted by a weakening US dollar, making the metal more attractive to buyers in other currencies. “A powerful combination of safe haven and risk- off purchases, fueled in part by USD weakness and policy uncertainty, is driving the rally.

” The release of key US economic data on Friday, such as the December jobs report, is attracting traders’ attention. A softer reading could prompt bets on further Federal Reserve interest rate cuts, which would benefit non- yielding precious metals.