Speculation in silver is down.

The reason, say market players, is heavy losses suffered by traders in south India and Ahmedabad dabbling in the white metal.

The average daily trading volumes show a fall of 24 per cent in terms of open interest positions in silver futures in the domestic market on the Multi Commodity Exchange, where trading of precious metals is concentrated, in the month of May compared with April.

A bull run in silver since January this year was followed by a sudden crash in prices.

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Silver prices are down 22 per cent on MCX in May in just a month's time since they peaked on April 28.

The average daily lots traded on MCX are down to their lowest in May to 16,794 lots from 22,189 lots in April.

On average, while 19,800 lots of silver futures were traded on MCX in March, over 25,000 lots were traded in January and February this year. Each lot is 30 kg of silver.

According to commodity brokers, the open interest will fall further as more and more traders might be afraid to trade aggressively in it because of the high volatility.

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"Traders were holding on to their positions in anticipation of another April-like spike.

"However, the last time short sellers of the metal were caught off guard and this time it's some long players who run the risk of being on the wrong side," said a Mumbai-based trader at one of the largest bullion trading houses.

Brokers say another spike may be unlikely as the US dollar has started moving up from its recent low levels.

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"Often, the dollar and precious metals have had an inverse relation and both do not rally together. More, high inflation has also brought down the demand for precious metals, which may not see another big rally this year," said another trader.

In India, silver prices touched a high of Rs 74,000 a kg on April 28 on MCX. Since then it has been trading in the range of Rs 52,000 to Rs 57,000.

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As per Monday's price, silver recorded a 22 per cent price fall in just over a month's time.

But, the rise too was sharp from around Rs 37,000 in January to the peak, which saw short sellers of silver losing money.

Globally too, the month of May saw trading positions being cut in silver on Comex in New York, the largest trading place for bullion.

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The combined speculative long plus short position in early April was almost 17,200 tonnes and by late May it was down by 23 per cent.

The actual recent low was the previous week and there was a smidgen of fresh long side interest in the following week.

Even though there is some tentative interest returning to the market, silver prices lack the momentum to scale the April highs in the foreseeable future.

Meanwhile, in the major exchange-traded instruments in the US, the net inflow of funds into silver between late January and the price peak was $760 million.

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Some $1.4 billion left the funds during the correction, and a further outflow of more than $660 million has taken place since, data published by local brokerages show.

Roughly $790 million went into the major gold funds between late January and the peak in early May, while during the correction the funds lost $1.2 billion.

Since then, though there were subsequent outflows yet gold funds stated turning round and have enjoyed fresh net investment of over $150 million.

"This gives us additional evidence that while gold is moving back into favour, silver market players may still tread with caution for the time being," the trader said.

(With data inputs from BS Research)