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Silver prices hit 31-year high as coin sales rocket

February 17, 2011 |  3:01 pm

Silver prices rose to new 31-year highs Thursday, underpinned by soaring investor demand for silver coins.

Near-term silver futures in New York jumped 94 cents, or 3.1%, to close at $31.57 an ounce. That topped the previous high of $31.09 reached on Jan. 3.

Before adjusting for inflation, prices haven’t been at these levels since the infamous spike of late 1979 and early 1980, when the Hunt brothers briefly cornered the market for the metal.

Silver and gold both surged in 2010, boosted in part by investors’ hunger for a hedge against potential inflation. Silver rocketed 84% last year, its biggest calendar-year gain since 1979.

Silvereagle But both metals sold off in January as some investors and traders cashed out. Silver fell as low as $26.80 an ounce by late January, a drop of nearly 14% from the Jan. 3 high, despite ongoing market rumors about shortages of the metal.

This month, traders say social unrest in the Middle East helped rekindle demand for precious metals as a haven -- a shift that continued on Thursday amid more confrontations between protesters and troops in Bahrain and Yemen.

What’s more, sales of silver coins by leading government mints show that investors’ craving  for the metal has mushroomed this year.

The U.S. Mint sold 6.4 million ounces of American Eagle silver coins to dealers in January, up 78% from what it sold in January 2010 and up 263% from December.

Still, the bulk of silver usage is for industrial applications and jewelry. That means the metal’s price can be closely tied to the health of the global economy, particularly manufacturing.

If your bet is that the economy will continue to expand, “Fundamentally silver probably has better reasons to rally than gold,” said Frank Cholly, a senior market strategist at commodities trader Lind-Waldock & Co. in Chicago.

Rising inflation wouldn’t hurt either. The U.S. government said Thursday that inflation ticked higher in January.

Gold also rallied Thursday, gaining $10 to $1,384.70 an ounce, although the yellow metal still is 2.7% below its record closing high of $1,422.60 reached Jan. 3.

Chinese investor demand for gold surged in January, Reuters reported Wednesday.

-- Tom Petruno

Photo: An American Eagle silver coin. Credit: U.S. Mint

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