Silver prices have declined for a second consecutive day as investors adjust their positions in anticipation of annual commodity index rebalancing. This rebalancing will lead to the sale of billions of dollars worth of futures contracts in the coming days. Spot silver was down 2.3 per cent to $US75.92 an ounce near midday in New York. Meanwhile, gold prices showed more resilience, edging 0.2 per cent higher to $US4464.35.
Passive tracking funds are expected to sell precious metals futures starting Thursday to align with new weightings mandated by the indexes. This routine process is particularly noteworthy for gold and silver this year, following their substantial rallies in the previous year. The rebalancing act can exert downward pressure on prices as funds liquidate existing positions to match the updated index compositions.
Adding to the bearish sentiment, silver-backed exchange-traded funds (ETFs) experienced their largest single-day outflow since October on Wednesday, coinciding with a period of heightened volatility. Citigroup estimates that approximately $US6.8 billion in silver futures could be sold to meet rebalancing requirements. This figure represents around 12 per cent of the open interest on the Comex, highlighting the significant impact of index rebalancing on silver compared to gold.
