Silver weakened from its record high, with technical indicators suggesting a six-day rally pushing the precious metal into overbought territory. Gold also weakened.

The white metal slumped as much as 2.4% before paring some losses in US trading. Traders had been betting on continued tight supply and expectations of another US interest rate cut – a boost for the non-yielding precious metal.

Looking at the 14-day relative strength index, a measure of overbought conditions, silver surged above 70, a level often considered an indication of overheated momentum.

Silver is experiencing a "natural pullback," said Ole Hansen, head of commodity strategy at Saxo Bank A/S. However, he added that the broader trend remains intact as long as prices hold above $54.5-$55 per ounce. The metal's surge of more than 8% over the previous two sessions has been driven by bets on prolonged tight supply.

Since record volumes of silver poured into London in October to relieve historic pressures, other trading centers have been under pressure. Inventories tied to warehouses on the Shanghai Futures Exchange recently fell to their lowest level in a decade.

"We have now moved beyond rational momentum," said Daniel Ghali, senior commodity strategist at TD Securities, in a note. "Demand expectations have declined across all categories, making investment demand the primary driver today," he said, citing weak physical trading in London's over-the-counter market.

The gold-silver ratio—which indicates how many ounces of silver are needed to buy one ounce of gold—has also fallen to its lowest level in more than a year, another indication that the rally may have run out of steam. Traders sometimes view such extremes as potential turning points.

Demand expectations have also been supported by growing expectations that the Federal Reserve will deliver another interest rate cut next week. The market has already priced in a quarter-point rate cut, which is almost certain to occur at the Fed's final meeting of the year.

Silver fell 1.4% to $57.14 an ounce as of 10:55 a.m. in New York. Gold fell 1.4% to $4,174.29. The Bloomberg Dollar Spot Index was little changed. Platinum fell while palladium gained. (alg)

Source: Bloomberg