Gold, silver follow oil prices higher

By Alix Steel, TheStreet

Updated at 4:06 p.m. ET

Gold prices rose again Monday and silver hit a 31-year high as climbing oil prices continued to lure investors to haven assets.

Gold for April delivery added $5.90 to settle at $$1,434.50 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,445.70 and as low as $1,428.30. The spot gold price was adding $2, according to Kitco's gold index.

Silver prices followed gold, rising 53 cents, or 1.5%, to settle at $35.86 after hitting a 31-year high of $36.74 early in the day.

As oil prices hit a two-and-a-half-year high, gold and silver followed suit. Investors were buying the metals as protection against uncertainty in the Middle East, an ongoing civil war in Libya, rising global inflation and loose monetary policies.

Stocks, meanwhile, got hit as oil crested $105 a barrel. The Dow Jones Industrial Average ($INDU) finished down 80 points at 12,090, the S&P 500 ($INX) fell 11 points to 1,310, and the Nasdaq ($COMPX) dropped 39 points, or 1.4%, to close at 2,746. 

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James Moore, research analyst for FastMarkets, wrote Monday that new highs in silver could trigger some selling, especially if investors need to cover losses in other assets, "but with the situation in the (Middle East and North Africa) still extremely volatile and oil continuing to rise, both gold & silver are likely to extend on a mix of safe-haven and anti-inflationary hedging with silver set to challenge $38-40 an ounce but ultimately the all-time record of $50 an ounce."

If the situation in Libya resolves itself, however, then commodities could see more of a selloff. On Monday it was rumored that Libyan leader Moammar Gadhafi would cede power if his family was allowed to leave the country safely. That said, the scenario of a steeper correction is not in the forefront of traders' minds.

David Morgan, founder of Silver-Investor.com,​ is buying into silver using silver stocks. "The equities are lagging the metals and if this rally is going to continue the equities will play catch up pretty quickly," he said. Morgan would use the same strategy with gold stocks versus the underlying commodity.

"Value wise, silver is still the better play," says Morgan. Currently, the silver-to-gold ratio -- the number of ounces of silver it takes to buy an ounce of gold -- is roughly 40:1. Morgan thinks the ratio could sink as low as 16, which, at current gold prices, could put silver at $90 per ounce.

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Although the safe haven buying is primarily a reaction to the Middle East turmoil, Moody's downgraded Greece's credit rating Monday from Ba1 to B1 with a negative outlook reminding investors that the worst might not be over for the eurozone nations. EU leaders are meeting at periodic summits during March to develop and debate a permanent bailout fund and strict guidelines on debt reduction to secure the cash.

The lackluster jobs number in the U.S. on Friday also underscored that the Federal Reserve won't be raising rates any time soon or be making any adjustments to its $600 billion bond buying program, set to expire in June. Some have blamed the Fed’s policies for triggering high inflation worldwide, as low rates spurred a flood of money into higher yielding emerging market currencies like those in the Middle East and North Africa.

Fed chairman Ben Bernanke has said that a change in monetary policy isn't on the table unless the jobs outlook improves. Easy free money in the U.S. should offset any rate hikes out of the EU as a weak dollar would continue to support higher gold and silver prices.

The U.S. dollar index was strengthening 0.1% Monday to $76.46, which appeared to be tempering gold's gains.

Over the weekend, the Chinese government laid out its long term economic plans, which focused on taming inflation and increasing personal wealth. The move would make China rely less on export demand and more on internal consumption.

China, despite wealth inequities, bought 200 tons of gold in January and February. The figure accounts only for individual purchases, not central bank buys. More purchasing power and greater wealth should only ramp up gold investment in the country.

At the BMO Capital Markets Global Metals and Mining conference in Florida last week, many CEOs cited strong demand from China and India as indicative of gold's popularity.

Mark Cutifani, CEO of AngloGold Ashanti (AU), said "I think with China (and) India, the way the world looks at gold, the way its performed through the recent crisis that you really can't afford to not have gold in your portfolio."

Barrick Gold (ABX) CEO Aaron Regent said that "you can also see gold within countries like India and China ramp up gold demand (and it) is growing quite rapidly. So I think gold is being recognized as a monetary asset and is a great store of value ... and I think that will continue."

Demand for gold wasn't coming from the ETF sector. The SPDR Gold Shares (GLD) didn't add any tons last week despite record gold prices. Currently the ETF holds over 1,210 tons, leaving many to cite strong physical demand from China as the force behind recent highs. Shares of GLD closed up 0.3% Monday at $139.73.

ETFS Physical Asian Gold Trust (AGOL) has added 4,798 ounces since inception on January 31, 2011. The fund is not an Asian ETF, but the gold is stored in Singapore and Will Rhind, head of U.S. operations for ETF Securities, has said that factor could be appealing to Asian investors.

Gold mining stocks, a risky but sometimes profitable way to buy gold, closed mostly lower Monday along with broader equities. New Gold (NGD) fell 0.5% to $10.67 and Newmont Mining (NEM) shed 1.1% to $53.68, while Barrick Gold gained 0.3% to finish at $52.99.

Among silver stocks, Silver Standard Resources (SSRI) closed down 0.2% at $29.55 while Silver Wheaton (SLW) rose 0.1% to $45.02.

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