Silver held near its all-time high at the start of a week in which the Federal Reserve is widely expected to cut interest rates. Gold edged higher.

The white metal stabilized after falling as much as 1.4% in Asian trading on Monday. It is less than a dollar shy of the record high of $59.3336 per ounce reached in the last session. Last week was the best since July for inflows into silver-backed exchange-traded funds (ETFs), with nearly 590 tonnes added, signaling investor confidence that the rally has more to go.

For most of last week, silver's 14-day relative strength index (RSI) fluctuated between 70 and 70—the threshold at which some traders would likely consider the metal overbought. The index was at 70.9 on Monday. "The current rally appears frothy, and retail investors are exhibiting momentum-chasing behavior," said Justin Lin, a Sydney-based investment analyst at Global X Management Co.

Silver has more than doubled in value this year – outpacing gold's 60% surge – and has recently gained momentum from expectations that the Fed will ease monetary policy at its final meeting of the year. Swap traders have already priced in a near-certain quarter-point cut – a boost for the precious metal, which pays no interest.

More broadly, the silver market is also facing the aftereffects of a historic short squeeze. One-month lease rates – which represent the annual cost of borrowing metal in London – remain high at around 6%, even after record amounts of metal flowed into the world's largest silver trading hub. This influx has, in turn, pressured other centers: Shanghai inventories are near a decade-low.

There was some profit-taking at the start of the week, but silver prices are finding support from tightening inventories in London and China, said Manav Modi, a Mumbai-based analyst at Motilal Oswal Financial Services Ltd. "Strong industrial demand, continued safe-haven inflows, and the highest weekly ETF inflows since July are further strengthening the bullish momentum."

Options on Comex silver futures also saw a surge in buying as investors positioned themselves for broader fluctuations and, in particular, further rallies. Retail traders flooded the market, with the five-day average volume on micro-futures contracts at levels only surpassed in mid-October, according to data from CME Group Inc.

Meanwhile, China's central bank added to its gold reserves for the 13th consecutive month, according to data released Sunday, bringing the total to about 74.12 million troy ounces.

Silver was little changed at $58.49 an ounce as of 10:55 a.m. London time. Gold prices rose 0.2% to $4,205.73 an ounce, after closing about 1% lower last week. The Bloomberg Dollar Spot Index was unchanged. Platinum and palladium gained. (alg)

Source: Bloomberg