* Fed meeting April 26-27 an event risk
* Gold, silver volatility related to options activity
* U.S. stock markets hit year high
(Updates prices, adds comment)
By David Sheppard
NEW YORK, April 26 (Reuters) - Silver was on course for its
largest one-day fall in six weeks on Tuesday after having hit a
31-year high in the previous session, while gold was pressured
by investor uncertainty over the likely course of U.S. monetary
policy.
Spot silver <XAG=> fell by as much as 4.9 percent to a
session low of $44.63 an ounce, after having risen to $49.31 on
Monday, its highest since touching $49.48 in January 1980.
High volatility and the expiry of U.S. silver options added
to the intensity of the decline, impacting gold, which fell
back from Monday's record of $1,518.10 an ounce ahead of the
outcome of the two-day U.S. Federal Reserve policy meeting on
Wednesday.
The Fed is expected to indicate that it is in no hurry to
raise interest rates, while Chairman Ben Bernanke will deliver
the first regularly scheduled post-decision news briefing in
the bank's 97-year history.
"We are seeing investors taking profits on the metal after
this incredible run-up which was fueled largely by
speculators," said TD Ameritrade chief derivatives strategist
Joe Kinahan.
"We often see this case in commodities where speculators
will come in a bit late to the party looking for the trend to
continue to be their friend," he said. "But the problem here is
that silver was nearing all-time highs this week."
Silver was last bid at $44.92 an ounce at 2:16 p.m. EDT
(1816 GMT), compared with $46.90 late in New York on Monday,
set for its biggest daily percentage loss since March 15.
Silver at-the-money implied options volatility <SIATMIV>
has risen by over 35 percent in the last four trading days to
hit its highest level since mid-November.
U.S. silver futures saw record volume on Monday, with over
300,000 lots changing hands, with another 162,818 trading by
2:16 p.m. on Tuesday.
Silver futures for May <SIK1> were down at $45.00 having
closed at $47.149 on Monday.
The iShares Silver Trust <SLV.P>, the world's largest
silver-backed exchange-traded fund, also saw heavy trading,
with a record 34.93 million shares trading on Monday and a
further 17.5 million shares changing hands before 2:00 p.m. EDT
on Tuesday. []
"Everyone has heard that silver is in a parabolic uptrend,
but it now appears ready to take at least a respite to calm
down a bit," wrote Larry McMillan, president of McMillan
Analysis Corp, in a report.
Gold <XAU=> meanwhile was on course for a second daily
decline, in spite of the weakness in the dollar, which usually
acts as an incentive to non-U.S. investors to buy the metal.
The spot price was last down 0.4 percent at $1,502.55 an
ounce, while U.S. gold futures for June delivery <GCM1> were
down 0.4 percent at $1,503.10.
DOLLAR LINK WEAKENS
However, gold's usual inverse relation to the dollar has
been weakening consistently since mid-April, meaning the
bullion price will derive less of a bounce from any softness in
the U.S. currency.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Silver technical outlook []
TIMELINE-A brief history of silver []
Gold,silver ETFs holdings: http://link.reuters.com/sen29r
ANALYST VIEW-Silver charges ahead []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The dollar fell to a 16-month low against the euro on
expectations that U.S. monetary policy will remain
accommodative compared to the European Central Bank, which has
already begun to raise rates.
Tighter U.S. policy would restrict the amount of cash in
the financial system and could temper concern about inflation,
which investors often protect against by buying gold.
The Federal Open Market Committee is expected to confirm it
will stick to plans to complete its $600 billion bond-buying
program. [] []
Traders say part of the reason for the volatility in gold
and silver prices is activity related to options -- contracts
which give holders the right to buy or sell the underlying
security at a fixed price in the futures.
"There's been a rush to cover exposure to these contracts
ahead of expiry," a trader said. "It's been more pronounced in
silver futures."
Silver prices are still up about 50 percent so far this
year after gains of more than 80 percent last year.
Platinum <XPT=> was last at $1,803.48 an ounce, down from
Monday's last quote at $1,819.30, while palladium traded at
$750.00 an ounce versus $757.80 on Monday.
(Additional reporting by Doris Frankel in Chicago,
Amanda Cooper and Pratima Desai in London; editing by Alden
Bentley and Marguerita Choy)
