Gold races toward $1,800, silver rallies 4 pct

A gold news article reported that gold is up 1 percent on a expected liquidity move by ECB and has now hit a 3-month high. Silver also took a 4 percent jump on technical buying, hitting a five-month high. Both gold and silver jumped on the expectation of continued liquidity coming into the market.

Tue Feb 28, 2012 12:15pm EST
By Frank Tang and Jan Harvey
Reuters

NEW YORK/LONDON, Feb 28 (Reuters) - Gold prices rose 1 percent toward $1,800 an ounce on Tuesday on an expected injection of cheap money from the European Central Bank, while silver rallied 4 percent after it breached key technical resistance.

Silver hit a five-month high and its rally quickened pace after it broke above recent highs near $35.70, a major channel-top resistance that had held several times since September.

Bullion rose to a three-month high, tracking the euro and U.S. equities as investors focused on inflation worries fueled by an upcoming ECB move to offer cheap money to companies which have been starved of investment funds.

"Both gold and silver are lifted by an expectation of continued liquidity coming into the market," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

"Massive fund buying and predominantly technical factors boosted silver, which was undervalued compared to everything else and we are covering a lot of the ground today," he said.

Spot gold was up 1.1 percent at $1,785.51 an ounce, having hit a fresh three-month high of $1,789.40.

U.S. gold futures for April delivery were up $12.30 an ounce at $1,787.20 in modest trading volume.

Silver rose 3.8 percent to $36.69 an ounce by 11:31 a.m. EST (1631 GMT), having hit a high of $36.74, its loftiest since Sept. 22.

Silver is by far the best-performing precious metal this year with a 32 percent gain. Last year, it posted a 10 percent loss after prices corrected sharply from a record near $50 an ounce set in April.

CitiFX strategist Tom Fitzpatrick said a close above key resistance at $35.66 an ounce, where the channel top converged with the major double-bottom neckline, would confirm a break, suggesting a test of $45, up 25 percent from current levels.

Some investors also bought silver as it appeared cheaper relative to gold. The gold/silver ratio, or the number of silver ounces needed to buy an ounce of gold, dropped to 48, its lowest since mid-September.

Strong investment buying also helped. Holdings of the world's largest silver exchange-traded fund rose 22.7 tonnes on Monday, and are up 109.8 tonnes since the beginning of the year. In the same period of 2011, they fell 255.2 tonnes.

ECB LIQUIDITY MOVE HELPS

Gold rallied as the euro rose 0.5 percent versus the dollar ahead of an expected cash injection of 500 billion euros from the ECB on Wednesday. The move is seen as buying more time for policymakers to sort out the sovereign debt crisis.

The precious metal has risen 14 percent so far this year, boosted in part by gains in the euro and consequent weakness in the dollar.

Analysts say with much euro-positive news now largely priced into the market, gold may struggle to rise significantly more, as the metal has so far struggled to maintain traction above $1,780 an ounce.

"I think at this point in time, the markets are well aware of what the ECB is going to do. I don't think it is likely to act as a further catalyst for strengthening gold prices," said Deutsche Bank analyst Daniel Brebner.

Elsewhere, spot platinum was up 0.9 percent at $1,715.99 an ounce, while spot palladium was up 1.5 percent at $712.22 an ounce.

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