Gold, silver surge

NEW YORK — Gold and silver prices on Tuesday extended their rise to levels not seen in more than two decades, driven by turmoil in the Middle East, rising oil prices and a weakening U.S. dollar.

Demand for precious metals, mostly by investment funds, is surging on “sheer momentum, which is feeding on itself,” said Peter Grandich, a gold market analyst who publishes the Grandich Letter.

The June contract for gold peaked at $623.80 an ounce Tuesday, then settled at $623.30, up $4.50 from Monday’s close on the New York Mercantile Exchange. Gold futures haven’t been this high since 1980.

May silver hit a high of $13.82 an ounce, before settling at $13.785, up 42 cents. Silver futures are at levels not seen since 1983.

Rising energy prices are fueling inflation concerns, said Bernard Hunter, director of precious metals at Scotia Mocatta, and “gold is seen as a hedge against inflation.”

Crude futures on Nymex rose to settle above $70 a barrel for the first time on Monday, and extended their climb on Tuesday, hitting a new trading record of $71.60 a barrel before settling at $71.35.

Many attribute the rise to the possible disruption of supplies, especially out of Iran, which has been refusing to halt its uranium enrichment. The United States and some of its allies suspect the program is intended for making nuclear weapons, but Iran insists it is for peaceful purposes.

Stoking market jitters was Monday’s Palestinian bombing attack in Israel, the first since Hamas took power in the Palestinian state three weeks ago, and the deadliest suicide bombing in 20 months.

Also driving the gold rush was the dollar’s fall in recent weeks. On Tuesday it slipped against the euro, which was at trading at $1.2286 Tuesday afternoon, up from $1.2258 late Monday. Because gold is denominated in the dollar, its long-term performance will depend largely on that of the U.S. currency — which has been weakening due to concerns over the U.S. economy and the budget and trade deficits.

“Gold is going to turn more into a monetary concern … the need for an alternative to the U.S. dollar will be evident,” Grandich said.

Because gold is now in territory not seen in 25 years, price resistance levels are more psychological than anything, Hunter said.