NEW YORK (
and silver prices were popping Tuesday as violence and political unrest spread throughout the Middle East and pushing gold past $1,400 and silver to 30-year highs.
Gold for April delivery settled $12.50 higher at $1,401.10 an ounce at the Comex division of the New York Mercantile Exchange. Although the market was "officially" closed Monday, prices still hit a high of $1,411.50 an ounce. The spot gold price was losing $6.50, factoring in Monday's spot rally, according to Kitco's gold index.
were continuing their monster rally and added 56 cents to $32.86 an ounce, setting another 30-year record. In "unofficial" trading, silver hit a high of $34.33 an ounce on Monday, up 11% for the year.
Using recent highs, the silver to gold ratio is now 41:1, meaning it takes only 41 ounces of silver to buy one ounce of gold. Many analysts were expecting the ratio to live somewhere between 45 and 50 for 2011. A lower ratio means that silver is moving faster than gold as rumors of supply shortages continue to lead to backwardation in the futures contracts.
Backwardation is when the spot month for silver is trading higher than future months, signaling that traders are worried about a lack of immediate silver supply. Currently, the March contract is trading at $33.10 while the July contract 2014 is at $32.41 an ounce.
Mihir Dange of Arbitrage says that silver will most likely stay in a tight volatile trading range between $31 to $34 an ounce. Dange is trading within that range but holding his core position long.
David Banister, chief investment strategist at ActiveTradingPartners.com, says within six to 12 months he is "looking for $39-$45 an ounce as the next likely interim high
for silver ... I suspect that silver will dramatically outperform gold in the next two to three years."
Gold prices still have yet to conquer their old high of $1,432.50 an ounce and have tried three times to break and hold new levels, forming, what traders call, a triple top. In the short term, gold is subject to profit-taking especially as the U.S. dollar rallies.
Silver prices are free from this technical issue, well below their old high of $50 an ounce hit in 1980 after the famous (or infamous) Hunt brothers cornered the market by buying the metal aggressively for seven years. At one time, they owned more than 200 million ounces of silver.
The silver bubble burst soon thereafter shedding 50% of its value almost immediately and over the last 30 years the metal has traded as low as $4. The history of the Hunt brothers taught traders that silver has a lot more room to run but also that any selloff can be really painful as the market is thin and not as liquid as gold.
. There were also rumors that Asian buyers were gobbling up shares of the
iShares Silver Trust
in order to take physical delivery, which they have to do in lots of 50,000 shares.
The silver ETF added 80.49 tons of silver on Friday, or 2.6 million ounces.
The appeal of silver is threefold. First, it's the "poor man's gold," but performs the role as a hard asset, a form of money that retains more value than paper currencies. Silver, like gold, is also a safe-haven asset. Both metals have seen a big boost as violence and protests exploded in Libya.
"We are talking about the fourth-largest provider of black gold on the African continent here," writes Jon Nadler, senior analyst at Kitco.com, "and the threat of supply disruptions in the wake of possible acquisition of the control of power by Libyan separatists is as real as the gains we see in the commodity."
Silver is also an industrial metal, with about 60% of its usage coming from the sector, which makes the metal a good play on a global economic recovery. Experts say, however, that industrial demand won't likely be as big of a support to higher silver prices in 2011 as it was in 2010.
"This year, this type of news will not be quite as unequivocally good," said Philip Klapwijk of GFMS. "We've had such a significant rebound in industrial demand for silver that gains will be somewhat harder to come by this year compared to 2010."
Gold and silver prices hardly flinched when China raised the amount banks must hold in their reserves by 50 basis points, which just seemed to confirm inflation worries in heavy gold-buying countries like China.
, bringing its grand total for the year to 579.5 tons, or 18.5 million ounces, according to the World Gold Council. Countries with high inflation are more apt to buy gold and silver as safer places to store wealth.
, a risky but profitable way to
, were mixed.
was losing 0.65% at $12.29 while
was shedding 2.52% at $69.34.
Coeur d'Alene Mines
Pan American Silver
were trading at $26.77 and $38.65, respectively.
Alix Steel in New York.
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