* 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
By Frank Tang and Jan Harvey
NEW YORK/LONDON, Feb 28 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
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
"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
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
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)