Silver soared to an all-time high on Thursday and gold rose to another record, as the dollar fell and as signs that the Federal Reserve would maintain a loose monetary policy stoke inflation worries.
Silver briefly climbed to within a whisker of $50 an ounce, eclipsing the peak hit when Texan brothers William Herbert and Nelson Bunker Hunt sought to corner the silver market three decades ago. The metal later pulled back on technical selling. Option traders reported strong buying of long-dated in-the-money silver calls, indicating bullish investor expectations. Also, the value of gold in terms of silver fell to less than 32 ounces on Thursday, the lowest on record according to Reuters data dating back to 1982. "We saw this morning weakness in the U.S. GDP numbers and a
rise in the inflation data in primarily food and gasoline prices. This led to the weakness in the dollar which caused investors to turn to silver and gold as a hedge against inflation," said Herb Kurlan, president of VTrader Pro, a proprietary trading firm.
Spot silver XAG=, which has rocketed nearly 60 percent so far this year, rose 1.6 percent to $48.53 an ounce by 3:29 p.m. EDT (1929 GMT), having earlier hit a record $49.51 an ounce, surpassing a peak of $49.48 on Jan. 18, 1980 set during the Hunt brothers era. A U.S. jury found that the Hunt brothers conspired to manipulate the prices of silver in 1979-80. During that time the price of U.S. silver futures soared from below $11 an ounce to a record $50.35, then tumbled back to around $11. U.S. GROWTH SLOWS, INFLATION RISES Spot gold XAU= rose to a lifetime high of $1,538.35 an ounce, breaking records for the ninth time in 10 sessions. It was later up 0.6 percent at $1,535.60 an ounce, up 0.6 percent.
U.S. June gold futures GCM1 settled up 0.9 percent at $1,531.20. Precious metals rose after as data showed U.S. economic growth braked sharply in the first quarter as higher food and gasoline prices dampened consumer spending, sending inflation rising at its fastest pace in 2-1/2 years. Adjusted for inflation, however, the current price of silver is about two-thirds below its record at over $130 an ounce, while gold was only a third below a peak of $2,200. Both records were set in 1980. Silver has surged 11 percent in just the last two days, even after Monday's technical failure that almost sent prices toward $50 before pulling back sharply. Year to date, silver was up almost 60 percent, currently the best performing commodity, sharply above gold's 8 percent gain.
SILVER OPTIONS SEEN BULLISH On the silver options front, heavy buying of call options indicated investors continued to bet silver prices to rise
further. "I am seeing all types of bullish call buying. They are in the money and far out, including December, March and September
calls," said COMEX options floor trader Dominick Cognata. "They are looking to buy cheap call spreads because this thing looks
like it may shoot up to to $70 or $80." Gold and silver's rally was supported by follow-up buying after Federal Reserve Chairman Ben Bernanke signaled on Wednesday that the U.S. central bank is in no rush to scale back its support for the economy. "Yesterday's speech from the Fed was an acknowledgment of the continuing of the strategy by the Fed and Washington ... to monetize our debt, and basically to devalue the dollar," said
Robert Lutts, chief investment officer of Cabot Money Management, which oversees more than $500 million in client assets. "The metal markets are recognizing that and it is being priced in. What monetization means is that, down the road, we will have more inflation," he said.