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Gold Jumps & Silver Skyrockets to Record Highs on Libya Unrest, Wisconsin Protest & Rising Oil Prices

Gold rose to settle at an all-time high Tuesday above $1,431 an ounce as chaos in Libya and political turmoil in the Arab world prompted safe-haven buying and soaring oil prices boosted bullion’s inflation hedge appeal.

Unrest across the Middle East and North Africa, which unseated leaders in Tunisia and Egypt before spreading across Libya, Bahrain, Yemen and Iran, fueled a 6 percent rise in gold prices in February.

“What gold needed was a catalyst, and it found it in the form of tensions that are surfacing in the Middle East and rising oil prices, which served as an inflationary threat and also led to political instability,” said Mark Luschini, chief investment strategist of Janney Montgomery Scott, a brokerage that manages $53 billion in client assets.

On Tuesday, Iranian security forces fired teargas and clashed with anti-government demonstrators protesting the treatment of opposition leaders. The United States said Libya could descend into civil war if Muammar Gaddafi refuses to quit, after word of unspecified Western military preparations.

Gold has rallied strongly since uprisings in Tunisia and Egypt unleashed a swathe of popular protests across the region, sending oil prices to 2-1/2-year highs and raising investors’ concern about the potential effects of high energy prices on economic growth. U.S. light sweet crude oil futures soared $2 to $99 a barrel.

Spot gold // [XAU=  1431.25    -2.45  (-0.17%)] //   rallied to a session peak of $1,432.10 an ounce — surpassing its previous record of 1,430.95 set on Dec. 7. The metal was last bid around $1,429 an ounce, extending its winning streak to three consecutive trading days.

U.S. gold futures // [GCV1  1438.40    24.40  (+1.73%)] // for April delivery settled up $21.30 to end at $1,431.20 an ounce.

Bullion rose 6 percent in February, its largest monthly rise since August. It traded mostly sideways last week, then gained on Tuesday on resurgent safe-haven bids.

Silver // [XAG=  34.66  —  UNCH  (0)] // hit a fresh 31-year high at $34.57 an ounce and later climbed 1.9 percent to $34.46. Silver has risen about 11 percent this year.

The gold-silver ratio, which shows how many ounces of silver it takes to buy one ounce of gold, approached a 13-year low. Silver has risen amid limited supplies for near-term delivery and on prospects of rising demand for industrial metals as the economy recovers.

Bernanke Comment Helps

Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee Tuesday that the recent surge in oil prices was unlikely to have a big impact on the U.S. economy, but could dampen growth and raise inflation if sustained.  Bernanke’s comments boosted gold as he offered no hint that the U.S. central bank was considering winding down its loose monetary policy, which also sent the U.S. dollar to a 3-1/2 month low against major currencies.

“From the start of crude oil’s ascent based on Libya, you are seeing general risk issues become more of a front burner in peoples’ psyche,” said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.  “You’ve had the U.S. long-term Treasurys rally. You’ve had a lot of the things that traditionally occur when people start to get afraid, all except the U.S dollar rally,” Dailey said.

Since the Fed cut interest rates to 0.25 percent in response to the global financial crisis in late 2008, gold has risen 70 percent.

In a reflection of investor ambiguity on gold, holdings of the metal dropped in the SPDR Gold Trust // [GLD  140.03    2.369  (+1.72%)] // , the world’s largest gold-backed exchange-traded fund.

In addition to fueling higher oil prices, turmoil in Libya has added to geopolitical uncertainty, which has led to a rebound in gold prices. Gold traded on the Comex rose $21.30, or 1.5%, to settle at $1,431 an ounce — a new record when not adjusted for inflation.
The sharp rise in oil prices overshadowed some encouraging corporate and economic news. General Motors (GM) racked up another impressive month of sales in February, as consumers snapped up new GM models despite soaring prices for gasoline. The Detroit-based automaker reported Tuesday that year-over year sales in February rose 46% for a total 207,028, exceeding analyst estimates, as well as GM’s own expectations.

Rival Ford Motor (F) reported Tuesday that its February sales rose 14% compared to a year ago, in part due to strong sales of the revamped Ford Explorer sports-utility vehicle, which debuted in late 2010. In all, auto sales in February ran at the strongest annual pace since the federal “cash-for-clunkers” program.

In economic news, activity at U.S. manufacturers expanded last month at its fastest pace in seven years. The Institute for Supply Management said its manufacturing index rose to 61.4 from 60.8 the prior month. The gauge easily beat economists’ average outlook, which stood at 60.5 for February. Alas, autos and manufacturers could stop the bleeding among stocks inflicted by oil.



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