UPDATE 4-Investors snap up silver, gold rises


(Updates prices throughout)

By Clare Black and Zach Howard

LONDON/NEW YORK, Aug 31 (Reuters) - Silver charged to a three-month high on Thursday, buoyed by strong investor interest, while gold rose on geopolitical tension but stayed stuck in a range.

Spot silver jumped about 2.8 percent to a peak of $12.89 a troy ounce, and ended trading in New York at $12.83/12.90, up from $12.47/57 in New York on Wednesday.

"It seems to be in solid hands. It has done extremely well and bucked the trend of many other (commodities). There is strong investment demand," one trader said.

Dealers were also hearing that a big U.S. managed futures fund had been buying up silver.

Silver's profile has been boosted in recent months via an exchange-traded fund (ETF), allowing investors to buy a share in bullion that is then traded on the American Stock Exchange.

Prices have surged by some 35 percent since hitting a low of $9.38 in the middle of June on concerns the growing popularity of the ETF would suck in a significant chunk of the metal supply. Gold prices rose 14 percent in the same period.

Barclays Global Investors' ETF, iShares Silver Trust , held just over 100 million ounces of silver as of Aug. 30 worth $1,266 million.

"Although we believe the silver ETF will need to collect 200-300 million ounces in order to materially squeeze physical liquidity, silver rates look too low here," UBS Investment Bank precious metals analyst John Reade said in a daily note.

Silver prices are still some way from a May peak of $15.17 -- the highest in 25 years. Traders said they would need to break above $12.75 to make further significant gains.


Spot gold last reached $625.20/626.20 an ounce, up from $617.20/618.70 previously, and near a session high just above $626.

Traders and analysts were not convinced by gold's recent performance, although it had bounced soundly off a five-week low hit three days ago.

"Gold is all a bit of a struggle at the moment," said Simon Weeks, director of precious metals at ScotiaMocatta.

"I can't help but feel the funds would rather liquidate some of their long positions at the moment."

Concern about Iran's stand-off with the West bolstered gold in its role as the tangible asset investors turn to in uncertain times, said traders.

A defiant Iran faces possible U.N Security Council sanctions after the world body's atomic watchdog said Tehran refused to stop work on its nuclear program by a Thursday deadline.

Comments by Jean Claude Trichet, president of the European Central Bank, who signaled that the bank may have to raise interest rates to stem inflation in the euro zone, also supported gold.

Although it is often touted as a hedge against inflation, ultimately higher interest rates are negative for the metal as they increase the opportunity cost of holding an asset that yields almost nothing.

"Maybe it (gold price) is not due to collapse yet, but I can't help thinking that in the last quarter, people will throw in the towel," Weeks added.

In industry news, another consolidation was announced, with Vancouver-based Goldcorp Inc acquiring Glamis Gold Ltd to creat one of the world's biggest gold mining firms.

Platinum rose to $1,239/1,244 an ounce in New York from $1,225/1,230, while palladium gained to $341.50/346.50, compared with $337/342.



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