PRECIOUS-Silver up 4 pct, gold races toward $1,800 on ECB

Tue Feb 28, 2012 2:49pm EST

* Silver surges on technical buying, hits five-month high
    * Gold up 1 pct to 3-mo high on expected ECB cheap money
    * Gold-silver ratio drops to lowest since September
    * Coming up: U.S. GDP Wednesday

 (Rewrites, update comment, market activity, adds link to
graphic)	
    By Frank Tang and Jan Harvey	
    NEW YORK/LONDON, Feb 28 (Reuters) - Silver rallied
more than 4 percent on Tuesday after it breached key technical
resistance and gold prices raced toward $1,800 an ounce a day
before the European Central Bank will offer cheap loans to
banks.	
    Bullion rose to a three-month high as markets focused on
economic uncertainty driven by an upcoming ECB move to offer
another half a trillion euros of low interest three-year loans
to banks and companies in need of investment funds.
 	
    Silver hit a five-month high and its rally quickened pace
after it broke above recent highs near $35.70, a resistance that
had failed to breach several times since September.	
    "Both gold and silver are lifted by an expectation of
continued liquidity coming into the market," said Frank McGhee,
head precious metals trader at Integrated Brokerage Services
LLC.  	
    "Massive fund buying and predominantly technical factors
boosted silver, which was undervalued compared to everything
else and we are covering a lot of the ground today," he said.	
    Spot gold was up 0.8 percent at $1,780.20 an ounce,
having hit a fresh three-month high of $1,789.40.	
    U.S. gold futures for April delivery settled up
$13.50 an ounce at $1,788.40, with trading volume about 20
percent below its 30-day average, preliminary Reuters data
showed.  	
    Silver rose 4.1 percent to $36.80 an ounce by 11:31
a.m. EST (1631 GMT), having hit a high of $37.21, its loftiest
since Sept. 22. 	
    Silver is by far the best-performing precious metal this
year with a 32 percent gain. Last year, it posted a 10 percent
loss after prices corrected sharply from a record near $50 an
ounce set in April.	
    On weekly charts, silver was poised to breach $35.66 an
ounce, where the channel top converged with the major
double-bottom neckline, said CitiFX strategist Tom Fitzpatrick.
A close above that resistance would confirm a break, suggesting
a test of $45, up 25 percent from current levels.	
      	
    Some investors also bought silver as it appeared cheaper
relative to gold. The gold/silver ratio, or the number of silver
ounces needed to buy an ounce of gold, dropped to 48, its lowest
since mid-September.	
    Strong investment buying also helped. Holdings of the
world's largest silver exchange-traded fund rose 22.7 tonnes on
Monday, and are up 109.8 tonnes since the beginning of the year.
In the same period of 2011, they fell 255.2 tonnes. 	
    	
    ECB LIQUIDITY MOVE HELPS	
    Gold rallied as the euro rose 0.5 percent versus the
dollar ahead of an expected cash injection of 500 billion euros
from the ECB on Wednesday. The move is seen as buying more time
for policymakers to sort out the sovereign debt crisis.  	
    "Gold and silver have been trending up in the last several
weeks on continued loose monetary policies from the Fed and the
world central banks," said Michael Cuggino, portfolio manager of
the Permanent Portfolio Funds with $17 billion in assets.	
    Cuggino said he did not focus on Tuesday's short-term rally,
and added that U.S. economic growth and easy money should boost
industrial metals such as silver and platinum in longer run.	
    Other analysts say with much euro-positive news now largely
priced into the market, gold may struggle to rally as it has so
far struggled to maintain traction above $1,780 an ounce.	
    Deutsche Bank analyst Daniel Brebner said markets were well
aware of ECB's easy monetary stance, which was unlikely to drive
gold prices up further.	
    In other precious metals, spot platinum was up 0.4
percent at $1,708.99 an ounce, while spot palladium was
up 2.2 percent at $716.97 an ounce.	
    	
 1:55 PM EST     LAST/    NET   PCT      LOW    HIGH  CURRENT
                SETTLE   CHNG  CHNG                       VOL
 US Gold APR   1788.40  13.50   0.8  1767.00 1792.70  139,832
 US Silver MAR  35.524  0.000   0.0   35.315  37.225   23,144
 US Plat APR   1723.50   9.20   0.5  1694.20 1728.40    5,939
 US Pall MAR    719.75  14.45   2.0   699.70  721.20    2,212
 
 Gold          1780.20  13.71   0.8  1766.28 1789.40         
 Silver         36.800  1.440   4.1   35.360  37.210
 Platinum      1708.99   7.50   0.4  1696.00 1723.00
 Palladium      716.97  15.25   2.2   704.18  719.75
 
 TOTAL MARKET              VOLUME          30-D ATM VOLATILITY
                CURRENT   30D AVG  250D AVG   CURRENT     CHG
 US Gold        151,117   193,310   195,360      21.2   -0.25
 US Silver       90,534    56,115    73,817     38.02   -0.42
 US Platinum      6,281     7,802     8,041     23.83    0.03
 US Palladium     7,941     5,000     4,651                  
 
 	
	
 (Editing by Bob Burgdorfer)
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