COMMODITIES : Silver Prices Skid as Inflation Fears Ease

Silver futures prices plunged Tuesday on New York’s Commodity Exchange, falling about 15 cents an ounce amid speculation that a widening in the nation’s merchandise trade deficit was not necessarily inflationary.

On other markets, crop futures mostly were lower, livestock and meat futures were mixed, oil futures slipped and stock index futures advanced.

Analysts said the Commerce Department’s morning report that the U.S. trade gap had jumped to $12.5 billion in June after narrowing for three consecutive months initially was viewed by precious-metals traders as a harbinger of higher inflation. Accordingly, gold and silver futures opened moderately higher in New York.

But the market later turned around as traders began focusing on the fact that exports dropped slightly, which analysts said apparently indicated that U.S. industrial production was not expanding as rapidly as many had believed. That could mean the threat of higher inflation may be less than many had feared.

The dollar, which initially had weakened on the trade news, reversed its course in mid-afternoon and the metals quickly followed suit, led by silver.

The trade deficit figure “doesn’t give you the impression the economy is very hot,” said John Norris, chief trader of precious metals with Citibank in New York.

Norris said another government report showing U.S. factories operating last month at 83.5% of capacity--a nearly 8 1/2-year high--could be viewed as inflationary.

Could Ease Pressure

But the notion that the Federal Reserve would raise interest rates further to combat inflation overshadowed the factory report and minimized its impact on the inflation-sensitive metals markets, he said.

William O’Neill, director of research with Elders Futures Inc. in New York, said the rise in imports noted by the report could reduce some of the capacity pressure on U.S. factories.

“If you look at the trade figure, it’s not as inflationary as the initial reaction to it might have seemed,” O’Neill said.

Gold settled $4.10 lower across the board, with the contract for delivery in August at $428.90 an ounce; silver was 15 cents to 15.4 cents lower, with September at $6.635 an ounce.

Grain and soybean futures closed mostly lower on the Chicago Board of Trade amid slack export demand and forecasts for showers and cooler temperatures.

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