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PRECIOUS-Silver slides as retail rush retreats

* CME raises Comex 5000 Silver Futures margins by 17.9%

* U.S. commodities regulator monitoring silver activity

* Billion ounces of silver traded in London on Monday - LBMA

* FACTBOX-How silver is traded (Updates prices)

Feb 2 (Reuters) - Silver slid more than 8% on Tuesday as small investors retreated after a rally to a near eight-year peak the previous session fuelled by a social media-driven trading frenzy.

Spot silver fell 8.2% to $26.59 an ounce by 1:54 p.m. EST (1854 GMT). On Monday, it surged 7.3% to its highest since February 2013.

“It appears that the attempted short squeeze by the smaller retail traders has at least temporarily failed,” said Kitco Metals senior analyst Jim Wyckoff, adding retail investors were looking for other markets to impact.

Contributing to the pullback, the CME Group raised maintenance margins on silver futures by 17.9% on Monday to tackle unusual market volatility. Also, posts on the WallStreetBets Reddit forum at the centre of the last week’s action encouraged traders to steer clear of silver.

“If these Reddit investors are going to try to squeeze the silver market, they’re going to have to do it this week, otherwise it’s going to be a flash in the pan,” Kitco’s Wyckoff said.

The market gyrations invited scrutiny from the U.S. commodities regulator.

“A coordinated surge in investment by retail traders into the silver market would simply raise volatility and generate small regional dislocations in supply-demand dynamics,” Goldman Sachs said in a note.

The largest silver-backed exchange traded fund, the iShares Silver Trust, added about 20 million ounces of silver to its holdings on Monday, following a record inflow of about 34 million ounces on Friday.

Spot gold, meanwhile, fell 1.4% to $1,835.11 per ounce. U.S. gold futures settled down 1.6% at $1,833.40.

Silver may weaken if gold does not move higher, HSBC analyst James Steel said in a note.

The current gold/silver ratio is “well below historical averages, and investors may recognise this level as straying too far from historical norms”.

Platinum declined 3.5% to $1,088.59, while palladium fell 0.2% to $2,241.14.

Reporting by Shreyansi Singh, Asha Sistla and Arpan Varghese in Bengaluru; Additional reporting by K. Sathya Narayanan; Editing by Edmund Blair, Bernadette Baum and Barbara Lewis

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