Silver and gold recovered some losses

Silver and gold recovered some losses on Wednesday as the dollar wilted on US data however precious metals remained under pressure after a strong rally in the last few weeks.

Mexico became the latest emerging economy to ditch some of its holdings of US dollars in favour of gold, buying over $4 billion worth of bullion between January and March, while the currency of its biggest trading partner sits at 2-1/2-year lows.

"The size (of the purchase) is certainly pretty chunky to have been accomplished in that space of time. So it certianly gives another sizeable layer of support to gold's position in the international reserves system," said Credit Suisse precious metals analyst Tom Kendall.

US silver futures have lost 14 percent over the past four sessions, wiping out gains from the previous three weeks that took the price to a 31-year top just below $50 on April 25.

US July silver futures fell to $40.96 an ounce by 1340 GMT, extending an 8-percent slide on Tuesday, when CME Group raised margin requirements on silver futures for the third time in a week.

Spot silver was bid at $41 versus $41.64 in New York late on Tuesday. It earlier fell more than 3 percent to $40.30 an ounce, its lowest since mid-April.

"At the moment, we're just consolidating especially for silver after such a strong retreat at the start of the week," VTB Capital analyst Andrey Kryuchenkov said. "The fact that the greenback has started coming off again is an additional factor to keep the metals here."

Spot gold was bid at $1,536.40 an ounce, having hit a record $1,575.79 on Monday, and compared with $1,540.38 the previous day. COMEX gold shed 0.2 percent to $1,536.9.

US private employers added 179,000 jobs in April, coming in shy of economists' expectations, a report by a payrolls processor showed on Wednesday. The dollar hovered just above a three-year low.

CHINA INFLATION OUTLOOK

Silver is still one of the top-performing commodities of the year, having risen by almost 45 percent. But investors remained wary of a market in almost chronic surplus and a highly volatile price.

Holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust, fell 0.42 percent from Monday to Tuesday, while the largest silver-backed ETF, New York's iShares Silver Trust, fell 0.95 percent.

"Even as gold has underperformed silver to the downside, so it should be seen as a buy much sooner than silver will be, perhaps closer to $1,500 where our one-month forecast sits," UBS said in a research note.

"Silver, by contrast, could well move down to the mid-$30s, though a near-term rebound to the $45 area can't be ruled out - making the metal difficult to trade at present, whether from the long side or the short side."