Silver climbed the most in a month in 22 years and gold rose to a three-month high in New York and London as a weaker US dollar increased demand for precious metals as an alternative investment.
The US Dollar Index, heading for its sharpest monthly drop this year, fell on speculation that gains in equities and signs of a global economic rebound will spur demand for higher- yielding assets. Precious metals typically move inversely to the US currency. Gold jumped the most for a month since November.
``Extreme (US) dollar weakness is adding to the momentum,'' Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said today in a note. ``Ascending oil prices, concerns of inflation and fears of massive US debt have certainly been supporting'' both metals, he said.
Silver futures for July delivery climbed 45 cents, or 3 per cent, to $US15.61 an ounce on the New York Mercantile Exchange's Comex division. The contract jumped 27 per cent this month, the biggest gain since April 1987.
In London, silver for immediate delivery climbed 49 cents, or 3.2 per cent, to $US15.64 an ounce. The spot price is up 26 per cent this month.
Gold futures for August delivery jumped $US17.10, or 1.8 per cent, to $US980.30 an ounce on the Comex, after touching $US982 earlier, the highest for a most-active contract since Feb. 24. Gold gained 10 per cent this month in New York, the most since November.
Spot gold gains
In London, gold for immediate delivery advanced $US16.24, or 1.7 per cent, to $US975.70, rising 9.9 per cent this month.
``North Korea's nuclear test was a cause for concern on the geopolitical front,'' said Ralph Preston, a commodity analyst at Heritage West Futures Inc. in San Diego. ``It's more than a coincidence that gold is moving towards its all time high this week.''
North Korea launched a sixth test missile this week. On May 25, the Asian nation exploded an atomic device underground and later said it would no longer abide by the agreement that ended the Korean War in 1953.
Gold may rise to $US1,400 an ounce during the next year, said Stephen Platt, an Archer Financial Services Inc. commodity analyst in Chicago.
The metal rose to $US975.50 in the afternoon ``fixing'' in London, used by some mining companies to sell their output, from $US957.75 yesterday.
Economic outlook
Commodities were headed for the biggest monthly rally in 34 years, led by energy, as the slumping dollar boosted demand for raw materials as a hedge against inflation. The 19-contract Reuters/Jefferies CRB Index climbed as much as 1.2 per cent, extending a rally to the highest since Nov. 11. The index neared a 14 per cent rise for the month, the most since July 1974.
European and Asian equities climbed today. The MSCI World Index headed for a third consecutive monthly increase, the longest winning streak since the credit crisis began in 2007, as investors speculated that the first simultaneous recessions in the US, Europe and Japan since World War II may be ending. First-time claims for jobless benefits fell in the US last week for the first time this month, the Labor Department said yesterday, and consumer sentiment is rising, surveys show.
Silver ``is very correlated to gold, but silver does have industrial application that gold doesn't,'' Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin, said today by phone. ``The `green shoots' story is more positive for silver. It's a very small market compared to gold. Even small amounts of money coming in can move up the price a lot.''
Business contraction
Still, US business activity contracted at a faster pace than forecast this month, according to the Institute for Supply Management-Chicago Inc. Chrysler LLC, the nation's third-largest automaker, sought bankruptcy court protection on April 30 and General Motors, until last year the world's largest carmaker, may follow as soon as June 1.
``With the GDP contraction we saw this morning, I think investors would be wiser to focus on deflation rather than Zimbabwe-on-the-Hudson,'' said Jon Nadler, a senior analyst at Kitco Inc. in Montreal. ``Another run to $US1,000 might just be gold's last such run for a while to come.''
An ounce of spot gold in London now buys about 62 ounces of silver, the lowest ratio since September, according to data compiled by Bloomberg. That compares with a ratio of 84 in October, the highest since March 1995.
Industrial uses
``This trend is likely to persist as we head into the summer months and more `green shoots' offer additional support to silver's appeal as an industrial metal,'' Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a note.
Industrial demand is rising for silver, used in equipment from solar cells to mobile-telephone covers, according to the US Geological Survey. The metal also acts as a chemical catalyst to make products such as formaldehyde.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, hasn't changed since reaching 1,118.76 metric tons last week, the company's Web site shows.
Among other precious metals traded in New York, platinum futures for July delivery jumped $US46.20, or 4 per cent, to $US1,196 an ounce, and palladium for September delivery added $US3.95, or 1.7 per cent, to $US237.45 an ounce.
