Silver Prices Surge as Gold Moves Higher

Silver is going for the gold...Gold & silver prices are both pushing higher amidst greater inflationary fears, but silver seems to be currently outshining gold as it reaches a 31 year high.

By Alix Steel 03/23/11 - 12:08 PM EDT
THE STREET

NEW YORK (TheStreet ) -- Gold prices were higher Wednesday while silver prices climbed towards $37 an ounce as safe haven buying continued.

Gold for April delivery was adding $11.50 to $1,439.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price was close to a new intraday high touching $1,441.20 an ounce, just $4 shy of its old record. The spot gold price was rising $10.50, according to Kitco's gold index.

"Close, although not the all time gold highs, are primarily driven by some inflation on all global fronts and again attention to Portugal, Ireland and other problems that are economic, not just geopolitical," argues George Gero, senior vice president at RBC Capital Markets. Portugal's parliament was nearing a vote on austerity measures, which if defeated, would result in the resignation of the prime minister, leaving the country leaderless for a few months. The result could push borrowing costs through the roof as Portugal tries to avoid a bailout.

The Bank of England also held rates low for March, but three members voted in favor of a rate hike. Inflation is at 4.4% and could exceed 5% later in 2011.

The real outperformer seems to be silver, rising 61 cents to $36.88 after closing at a 31-year high Tuesday of $36.26 an ounce.

"I think there are enough reasons to stay long in the market" for gold and silver says Brian Booth, senior market strategist at Lind-Waldock, who sees $42 silver. As silver keeps closing above recent 31-year highs, traders will become more interested in the metal as it has "proved" its ability.

On the physical side, silver is also in high demand.

Nigel Moffett, head of Treasury at Gold Corp., owner of the Perth Mint, which refines 350 tons of gold and 160 tons of silver a year, says that the big change in precious metal demand in 2011 is strong silver buying from Germany. The most desired item is the Mint's one kilogram silver coin, which sells for $1,116 plus a small premium. "[For silver] it's a general demand ... silver is the popular one."

"Gold demand ... leads silver," says Moffatt, "but when you are seeing $1,400 gold and $35 silver, $35 silver looks a lot more attractive."

Moffett is still seeing gold selling from Japan as owners of the metal trade in gold for cash, but says that the continuing conflict in the Middle East and North Africa should keep safe haven demand strong.

Reportedly 4 people were killed during an Israeli-Palestinian clash in the Gaza strip. Libya's leader, Gadhafi, seems to be digging in his heels and not ceding ground to U.S. lead airstrikes. Opposition in Yemen is also calling for a rally Friday dubbed "Friday of the March Forward," indicating further unrest in the region.

"Short-term, sentiment is likely to remain mixed and volatile as traders and investors react to developments in the major news issues," says James Moore, research analyst at FastMarkets. "Strong investment demand in Asia should help underpin gold and silver in the coming sessions."

Moffatt says gold is still king, however, in China and India, "you have those two slugging it out ... to pick up as much gold as they can." India is more price sensitive than China and it's hard to determine who is buying -- China's central bank or individuals.

"But if you look at China as a producer," says Moffatt, "[it's] the world's number one producer, producing 340 tons of gold a year. You don't see any of that coming out of China. You see a lot of gold going into China." Moffatt believes that its central bank is a prominent buyer.

Reuters also reported Wednesday that China Gold International is in talks to buy five or six gold mines overseas. China Gold is 42% owned by China National Gold Corp, China's biggest state owned gold miner, which has been recently buying gold concentrate from companies like Coeur d'Alene Mines(CDE).

Gold mining stocks , a risky but profitable way to buy gold, were popping. Barrick Gold(ABX) was 2.29% higher at $51.37 while Newmont Mining(NEM) was adding 2.58% to $54.54.

Other gold stocks, Randgold Resources(GOLD) and AngloGold Ashanti(AU) were trading at $74.96 and $46.36, respectively.

--Written by Alix Steel in New York.

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