Gold prices soar to hit seven-week high

Gold prices kept building on recent gains Friday, hitting a seven-week high overnight on fresh safe-haven demand triggered by the Bank of Japan's decision Thursday to held fire on more monetary stimulus, which weighed on stock markets and the dollar.

Spot gold was up 0.7% at $1,274.52 an ounce in early London trading, having earlier peaked at $1,280.60 an ounce. U.S. gold futures for June delivery were up $11.20 an ounce at $1,277.60. Silver, in turn, climbed 1.4% to $17.77 an ounce, its highest since January last year.

This week alone, the precious yellow metal has climbed 3.5% percent and if Friday’s early gains held it would be gold’s biggest weekly jump since the week ended Feb. 12.

Gold prices soar to hit seven-week high

(Courtesy of Kitco.com)

Some, such as RBC Capital Markets, argue that the price rally should be approached with caution, especially following the latest GFMS report, which showed soft physical demand.

"Despite the investor led rally in gold prices at the beginning of the year, the lack of physical follow-through is a fundamental reason for why we think sustained gold bulls will be disappointed by year-end," wrote RBC's Helima Croft and team in a note Thursday. "Absent a large and unforeseen risk-off move driving gold higher, we think that prices likely have already peaked this year."

Silver investors are more bullish than that. The metal has gained 15% this month and is on track for its biggest monthly increase since August 2013.

Deutsche Bank in a recent research note, said based on historical trends of the relationship between the two metals silver could break $20 an ounce in the near term:

"In our view, a near-term catalyst to drive gold higher is not obvious, but we think the metal remains well supported. The long – term gold silver ratio (since 1973) is 57.7. The more recent range is however 85 during the depths of the global financial crisis to 35 during the period of recovery and unprecedented Quantitative Easing.

"If gold stays relatively range bound at $1,250/oz, a silver rerating to 66.6 (the average 1983 – 2003), the silver could trade up to $18.8/oz, and a silver rerating to 61.1 (the average since 2003), then silver could trade as high as $20.5/oz."

Gold prices soar to hit seven-week high

(Courtesy of Kitco.com)

The German investment bank is not alone in predicting a rosy outlook for the silver price. Analysts with Bank of America Merrill Lynch on Tuesday raised their 2016 average prices forecast for 2015 to $16.47 (year to date silver is averaging $15.18) saying silver's fundamentals look the strongest in years thanks to declining mine output and rising industrial demand.

Only around 30% of global output is from primary silver mines, less than the contribution of by-product production at zinc and lead mines where a number of mine closures are in the offing. The bulk of silver usage is also in industrial applications including alloys, electronics, photovoltaic and for the production of ethylene oxide.