Silver soared to an all-time high Thursday and gold rose to another record, as the U.S. 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 (U.S.) 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 Thursday, the lowest on record according to Reuters data dating back to 1982.
"I don't think the market has topped out. While there are some inflation concerns similar to what we had back in 1980, the reality is that metals are going up as an alternative asset featuring gold, and by proxy silver," said Bill O'Neill, partner of commodities firm Logic Advisors.
Spot silver, which has rocketed nearly 60 per cent so far this year, rose 1.6 per cent to $48.53 an ounce by 3:29 p.m. ET, 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.
Soaring prices also hurt the bottom line of silver manufacturers, including photography company Eastman Kodak, which said Thursday a hike in raw material costs, particularly in silver, led to a decrease in its film business revenue.
Despite a continued decline of film photography, which used to be a major silver buyer, the industrial sector typically consumes half of global silver supply.
Spot gold 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 per cent at $1,535.60 an ounce, up 0.6 per cent. U.S. June gold futures settled up 0.9 per cent 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 per cent 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 per cent, currently the best performing commodity, sharply above gold's 8 per cent gain.
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 $70 or $80."
Gold and silver's rally was supported by follow-up buying after Federal Reserve Chairman Ben Bernanke signalled on Wednesday that the U.S. central bank is in no rush to scale back its support for the economy.
"The metal markets are recognizing that [Fed policy]and it is being priced in. What monetization means is that, down the road, we will have more inflation," said Robert Lutts, chief investment officer of Cabot Money Management, which oversees more than $500-million in client assets.
In platinum group metals, platinum gained 0.8 per cent to $1,834.40 an ounce, while palladium rose 1.3 per cent to $773 an ounce.