Gold prices rose Thursday for a fourth day, their longest winning streak since September, as U.S. consumer price data stoked worries over inflation, adding fuel to safe-haven buying due to flaring Middle East tensions.
Bullion's gains sparked strong investment buying in silver, which rallied to a 31-year high, further widening silver's gains over gold and sending the gold-silver ratio to a near five-year low.
Gold buying was underpinned after data showed U.S. core consumer prices rose 0.2 per cent in January, the fastest pace in more than a year, indicating a long period of slowing inflation had run its course. Earlier this week, strong Chinese core inflation had also boosted gold.
"The CPI data showed there is a lot of inflation around now. Certainly, inflation and the concern about the Middle East in general are very supportive factors," said Bruce Dunn, vice president at bullion dealer Auramet.
Safe-haven buying increased as unrest spread across the Middle East and North Africa, after Bahrain Thursday launched a swift military crackdown on anti-government protesters and clashes were reported in Libya and Yemen.
Gold was set for its strongest weekly performance this year, recovering from January when it notched the biggest monthly decline in six months, as investor appetite was rekindled by rising political tensions. Other safe-haven investments like the Swiss franc and U.S. Treasuries also rose.
Spot gold rose to a five-week high at $1,384.65 an ounce and was up 0.7 per cent at $1,384.19 an ounce by 3:14 p.m. ET .
U.S. gold futures for April delivery settled up $10 at $1,385.10, with volume about 55 per cent below its 30-day norm. That was in line with recent lower-than-normal turnover, a possible sign of dwindling trading interest.
Silver hit a session high of $31.77 an ounce and was up 3.6 per cent at $31.73 an ounce.
"Good physical buying for silver on strong industrial and retail coin and bar demand are underpinning the market," said Auramet's Dunn.
The gold-silver ratio – the number of silver ounces needed to buy an ounce of gold – fell to below 44, a key area near its lowest level in five years, as silver has outperformed gold.
Year to date, silver was 3 per cent higher, swinging into positive territory with Thursday's rally, while gold was still 2.5 per cent lower.
Gold and silver also benefited from a broad decline of the dollar versus a currency basket after data showed U.S. new unemployment benefit claims climbed faster than forecast last week.
The technical picture has also sharply improved this week, with prices breaching key resistance levels, including bullion's 50-day and 100-day moving averages, analysts said.
ARAB WORLD UNREST, INFLATION SUPPORT
Analysts said the metal could potentially rise further on safe-haven demand as unrest spread across the Middle East after protests earlier in the year unseated leaders in Tunisia and Egypt.
The prospect of rising inflation, not only in areas currently affected by the phenomenon such as China and India, but also in the United States and Europe, has become an oft-cited reason to hold gold in recent weeks.
"The mood of the market is that an inflation story, a war story, an Egypt story, a Bahrain story will all be bullish for gold, because the market is looking for those at the moment," said ANZ Bank analyst Peter Hillyard.
In the physical market, the World Gold Council said overall demand for gold is likely to remain firm this year, driven by buying from India and China, as it released a report showing bullion consumption hit a 10-year high in 2010.
Palladium eased 0.4 per cent to $841.09, and platinum rose 0.9 per cent to $1,843.
Meanwhile, U.S. crude futures rose sharply on Thursday as Egypt-style protests in oil-producing regions kept the potential for supply disruption in focus and traders moved to narrow the record deficit to Brent crude.
Brent crude fell from a near 2-1/2 year peak as traders unwound spreads, narrowing Brent's premium to its U.S. counterpart to $13.75 at settlement from an earlier $16.51 record high.
The dollar's broad decline as Middle East turmoil boosted the appeal of other safe-haven currencies also helped support dollar-denominated oil prices.
U.S. crude for March delivery rose $1.37 to settle at $86.36 a barrel, gaining 1.6 per cent, its biggest rise in two weeks. Short-covering ahead of the contract's expiration on Tuesday also helped to pull prices higher.
U.S. April crude rose $1 to settle at $88.84.
Brent crude for April delivery fell $1.19 to settle at $102.59, retreating from a $104.30 peak. Wednesday's Brent close was the highest since September 2008, as was the intraday peak of $104.52.
"It looks like there are more fears about unrest going on in the Middle East with the issues about Iran trying to put warships into the Suez canal," said Mike Zarembski, senior commodities analysts for optionsXpress in Chicago.
"Brent is actually a bit weaker here and it looks like there may be a bit of squaring off of that position and a bit of profit taking for those lucky enough to be long Brent and short WTI."
A Reuters poll of analysts and banks on Thursday forecast that Brent prices would drop later this year as the risk premium from unrest in the Middle East ebbs.
"The current price is unsustainable," said Carsten Fritsch, commodity analyst at Commerzbank in Frankfurt. "Tension in the Middle East should calm down at some point, whereas (North Sea) output should normalize."
Clashes with protesters in Bahrain, Libya and Yemen kept investors on edge.
Tensions between Israel and Iran remained a factor amid uncertainty about Iran's plans to send navy ships through the Suez Canal, after Israel's foreign minister called the intention provocative and markets were rattled on Wednesday.
Iranian state TV said on Thursday that two Iranian warships were due to pass through the Suez Canal, the first such passage by the Islamic Republic's navy since Iran's 1979 revolution.
But Suez Canal officials said they had no notification so far that the Egyptian government would allow the two Iranian naval ships to cross the waterway.
Tensions about navy ships in the canal came as Iran planned to prosecute opposition leaders for protests.
U.S. economic data was mixed and did not provide directional momentum for oil prices, brokers and analysts said. January core consumer prices rose at their quickest pace in more than a year and above expectations.