London - Silver hit a two-and-a-half-year low on Monday, prompted by heavy fund liquidation in Asian trade, while gold was on track for its longest run of losses since March 2009 weighed by speculation that the U.S. Federal Reserve might rein in its economic stimulus programme.
Investors have been dumping gold and silver, which are down 20 percent and 30 percent respectively this year, while stocks and the dollar have risen on an improving global economic outlook.
Gold-backed exchange-traded funds have seen massive outflows in recent months, although silver holdings have held up well.
Silver was down four percent at $21.39 an ounce by 1009 GMT after touching $20.84, its lowest since September 2010. COMEX silver futures dropped as much as 9 percent.
Analysts had said it was only a matter of time before silver would give way given flagging industrial demand.
More than 3,000 lots were sold in Comex silver futures in just 20 minutes of early Asian trading on Monday, Reuters data showed.
Yuichi Ikemizu, branch manager for Standard Bank in Tokyo said an unidentified investor sold off a big chunk of silver holdings on Monday morning.
“The drastic move lower happened pretty much after the Chicago Mercantile Exchange's (CME) electronic platform Globex opening,” MKS head of trading Afshin Nabavi said.
“The move was exacerbated by the fact that it happened when liquidity was very thin in Asian trade,” he added. “If the same happened in London or New York hours, the size of the liquidation might have been cushioned by higher volumes.”
The gold-silver ratio is at its highest level since September 2010 with an ounce of gold currently buying 63 ounces of silver. That is twice as much as in April 2011, when silver was trading considerably higher.
Holdings of the largest silver ETF, the iShares Silver Trust , fell 187.7 tonnes last week to 10,253 tonnes, hitting their lowest level since mid-January. That was the trust's biggest weekly outflow since the start of May.
FED WEIGHS
Comments from Federal Reserve officials and positive U.S. data have boosted talk that the bank may reduce its monetary easing measures, which have boosted gold prices in recent years by holding down interest rates and undermining the dollar.
Spot gold hit a low of $1,338.95 an ounce on Monday, its weakest since April 16, when worries that European central banks might liquidate gold reserves and a break through the technical level of $1,525 an ounce prompted a sell-off.
“Downward pressure on gold continues and we are now back to levels post the mid-April sell-off,” UBS said in a note to clients.
Gold cut some earlier losses but remained 0.5 percent lower at $1,352.55. An eighth consecutive daily fall on Monday would mark its longest run of losses since March 2009.
U.S. gold futures fell as much as 2 percent before recovering to $1,353.10, down 0.9 percent.
Hedge funds and money managers cut net long positions in gold and silver futures and options in the week to May 14, a report by the Commodity Futures Trading Commission (CFTC) showed on Friday.
Money managers, including hedge funds, pulled $1.4 billion from the U.S. gold futures market, Reuters calculations based on CFTC data showed.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, hit their lowest in four years on Friday, the fund reported, declining 3 tonnes to 1,038.41 tonnes.
In other precious metals, platinum fell 0.2 percent to $1,446.24 an ounce, with the metal's premium over gold at its highest level since August 2011.
Palladium fell 0.4 percent to $731.50 an ounce. -Reuters