Gold, Silver Prices Hang Onto Rally

NEW YORK (TheStreet ) -- Gold and silver prices popped Wednesday as investors bought the metals as protection against rising oil prices, a weak Dow and violence in the Middle East.

Gold for April delivery added $12.90 to $1,414 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,417.30 and as low as $1,396, and has rallied 6% since the beginning of February. The metal has recouped most of the losses it saw in January when traders dumped the metal. The spot gold price was adding $11.20, according to Kitco's gold index.

Silver prices were continuing their meteoric climb, settling up 43 cents Wednesday to $33.29 an ounce. Silver has rallied 11% in 2011, 17% in February alone, as investors opted for the cheaper safe-haven metal.

Despite intermittent profit-taking, both gold and silver saw a further safe-haven bid Wednesday. Unrest in the Middle East fueled worries that the violence in Libya will spill over to other more oil rich nations, while the Dow Jones Industrial Average extended losses from Tuesday's session. Uncertainty and risk aversion were a green light for higher gold and silver prices.

The metals beat back profit-taking, which was the biggest headwind headed into trading today. The popular gold exchange-traded fund, SPDR Gold Shares(GLD_), shed almost 5 tons on Tuesday as some investors took advantage of gold's double-digit rally. The iShares Silver Trust(SLV_) saw similar action having lost 176 tons.

"I am looking at taking profits [in silver] up at these levels," says Phil Streible, senior market strategist at Lind-Waldock. Streible believes silver prices have moved too far too fast and that "this could be a set up for some kind of reversal."

Traders who were late to the silver game could sell out of their positions as they run out of cash in other assets. "I think we trade back down to $31," says Streible. "I think ultimately we still hit that $39-$42 ... but it's not going to be in one shot ... unless some significant supply and demand structure changes ... I think we chop our way up there."

Mihir Dange of Arbitrage also thinks that silver is overbought but is looking at a pullback to $31 as a trading opportunity. "As long as you can trade from $31.25 and $34.30 ... I would get involved in between those areas." As long as silver stays above $30, Dange would be bullish, a correction below that level would make him bearish.

Gold is still having to contend with its triple top, where it tried three times to break to new highs but failed. The good news for gold is that it took out its high from Monday of $1,411 an ounce, trouncing it by $6. Those traders waiting for confirmation of a gold uptrend might have the conviction to jump on board. Silver's high Wednesday was $33.76, slightly lower than its $34.33 31-year high on Tuesday.

Streible is optimistic saying he feels like gold is setting up for a breakout, primarily if the euro stays weak.

"I think that propels gold prices higher," says Streible, while the biggest headwind for gold would be a stronger U.S. dollar.

The U.S dollar index was slipping 0.39% to $77.44 while the euro was adding 0.67% to $1.37 vs. the dollar.

Gold mining stocks, a risky but profitable way to buy gold, were popping Wednesday despite a broad market selloff. Yamana Gold(AUY_) was adding 1.88% at $12.47 while Agnico-Eagle(AEM_) was soaring 3.26% at $71.54.

Other large gold stocks, Eldorado Gold(EGO_) and Harmony Gold(HMY_), were trading at $17.17 and $11.57, respectively.

(Source: http://www.thestreet.com/story/11018960/2/gold-silver-prices-hang-onto-rally.html)