Unease causes surge in silver prices

March 25, 1994|By Bloomberg Business News

NEW YORK -- Silver prices surged yesterday, leading other precious metals prices higher, amid unease over the assassination of Mexican presidential candidate Luis Donaldo Colosio in Tijuana at a campaign rally Wednesday.

Mexico is the world's largest silver producer, accounting for more than 18 percent of the world's newly mined silver in 1993, according to estimates by the Silver Institute in Washington.

Meanwhile, Mexico's markets were officially closed yesterday for day of mourning, though it seemed clear government officials hoped to avert a massive share price drop and possible run on the peso by giving investors a day to assess the situation.

The threat of lost silver production comes at a time when demand is expected to exceed production by about 150 million ounces in 1993, or almost half of 1993 silver production. Also, precious metals prices often rise when political instability threatens to roil world stock and bond markets.

"Certainly, the assassination of the Mexican presidential candidate is being used as an excuse" to push silver prices higher, said Daniel Weissman, head precious metals trader with MTB Bank in New York.

Silver for May delivery jumped 9.3 cents, to $5.745 an ounce. Silver prices have risen 10 percent since March 7, as rising commodity prices aroused concern that inflation is reviving and demand from India increased after easing of import restrictions there.

April gold rose $4.50, to $391.90 an ounce, on the Commodity Exchange, and April platinum rose $3.90, to $409.00 an ounce, on the New York Mercantile Exchange.

"I guess if there was a serious disruption in Mexico, that would have some effect on silver supplies," said John Lutley, executive director if the Silver Institute.

Mexican silver demand would be expected to rise if political problems worsen, he said. Investors often buy precious metals when political turmoil threatens the value of other investments.

Mr. Colosio's death threatens the ruling Institutional Revolutionary Party's 65-year hold on power, analysts said, while other recent events suggest further unrest.

"This is the single worst thing that could have happened to Mexico, bar none," said Mitchell Sahn, president of Valmex International, a Mexican brokerage house. "It reinforces people's perceptions of instability and uncertainty."

The shooting initially triggered panic among U.S. investors, who own $56 billion worth of Mexican shares, or 27 percent of the total stock market capitalization.

However, assurances by Mexican officials that financial markets would open today, and a pledge from U.S. President Bill Clinton to help defend the peso, calmed investors' nerves. Though few argued the crisis was over, the belief that the election and the economic reforms championed by Mexican President Carlos Salinas and the election wouldn't be derailed began to take hold.

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