Gold rose to an all-time high for a second straight day on Wednesday as the US dollar fell to a 14-month low against the euro ahead of an expected interest rate hike from the European Central Bank (ECB). Silver surged to a 31-year peak for a third consecutive day as holdings of the world's largest silver exchange-traded fund hit a record.
Precious metals also drew support from renewed sovereign debt fears amid Portugal's financial crisis and inflation worries as crude oil and corn gently pulled back from new peaks. On the silver options front, investors used bullish strategies such as call spreads buying and put selling, even as implied volatility stayed largely flat, a sign that the metal is building momentum for another upward move.
"It is unquestionable that the demand for precious metals derives from the devaluation of the leading currencies - the dollar, the pound and the euro," said Angelos Damaskos, a fund manager at Sector Investment Managers. Spot gold hit a record $1,461.91 an ounce before easing to $1,458.90 an ounce, up 0.6 percent, by 2:40 pm EDT (1840 GMT). US gold futures for June delivery settled up 0.4 percent to $1,458.50.
The traditional inverse correlation between gold and the dollar appeared to be strengthening this week to a negative 0.8, as gold rose to successive records, but the link between the two could be erratic in the near term. A correlation of minus 1 indicates a perfect inverse link, and vice versa. Gold remained far below its all-time inflation-adjusted high, estimated at almost $2,500 an ounce set in 1980 as a result of heightened geopolitical pressure and hyperinflation.
Strong investment demand drove silver up more than 1 percent to a high of $39.75 - its best since January 1980, when the Hunt Brothers corned the market. Silver eased off the session high to trade at $39.52 an ounce, up 0.7 percent. Holdings of silver in the iShares Silver Trust ETF are at a record 11,162.45 tonnes, up more than 240 tonnes so far this year.
The gold-silver ratio, which shows how many silver ounces are needed to buy an ounce of gold, fell to a 28-year low at below 37. Silver outperformed gold in the first quarter, rising 22 percent, while gold rose 0.7 percent. Reflecting the pick-up in investor demand for gold was the first inflow of the metal into the SPDR Gold Trust since March 16.
Investors remained focused on Thursday's policy meetings by the ECB and by two other major central banks. The Bank of Japan and the Bank of England are expected to hold rates steady. For platinum group metals, spot platinum rose 0.1 percent to $1,787.99 an ounce, while palladium slipped 0.5 percent to $782.22.
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