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Tuesday, May 30, 2000

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Silver falls to $4.9/ounce

G. Chandrashekhar

MUMBAI, May 29

SILVER weakened last week, even dropping below $4.90 per ounce, despite a generally positive market survey by Gold Fields Minerals Services that suggested silver prices will remain in a $ 4.90/oz and $ 5.50/oz range.

The silver market remained in a large supply deficit last year, according to the survey. Admittedly, it seems a little incongruous that the deficit rose last year but the prices fell, said an analyst at Macquarie Bank Ltd.

As industrial demand drove strong consumption, the market remained in supply deficit. But Chinese exports had leapt to meet demand and speculators had become disillusioned, the survey pointed out.

Demand for silver rose five per cent to a new record level of over 27,000 tonnes largely due to extremely strong industrial demand, particularly for use in electronics. This was not only based on strong economic growth, but substitution of more expensive precious metals such as platinum and gold for silver in an increasing number of applications. Jewellery and silverware also rose last year.

While the demand was strong, most segments of supply fell last year. Mine supply dropped largely due to the problems faced in Mexico. According to Macquaire, critically for the silver market (and perhaps for the gold market too) the continuing liberalisa tion of the Chinese silver market saw a flood of People's Bank of China (PBoC) silver out of the country last year.

A large part of this silver went to India where China has emerged as the dominant supplier, displacing suppliers in Dubai and Europe. Much of the displaced silver returned to increase European dealers' stocks. It is unclear how much silver is held by the PBoC, let alone in private stocks.

It seemed very likely that large Chinese exports were likely to remain an important factor for the silver market, much as they were for lead, zinc and tin, Macquarie said.

Gold sank 0.7 per cent last week after the sixth UK 25-tonne auction produced disappointing level of interest. The metal ended the week at $ 271.3/oz.

Macquarie said gold was hit by selling pressure following news that South Africa's Gold Fields, the world's second largest gold producer was in talks with a number of parties that could affect its share price. Rumours abounded about what this deal could be, with companies in North America, Australia and Africa all mentioned as possibilities.

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