Thank the Libor probe for silver's two month high

Silver may be a "poor man's gold," but investors who have stuck to it are finally cashing in on some dividends as the precious metal rose to its highest level in two months, hitting $29.09 per ounce—3.5% up on last week's close.

"This changes [silver's] posture to bullish," says the latest technical analysis note from bullion bank Scotia Mocatta, part of Scotiabank's Global Banking and Markets.

A stronger euro and optimism about the financial situation in Europe helped both silver and gold rally as investors hurried to buy hard assets to protect against inflation.

Silver for September delivery, the most actively traded silver contract, climbed 83.5 cents, or 2.9%, to settle at $29.428 a troy ounce. This was the highest settlement price since reaching $29.488 on June 6.

Gold, in turn, rose to a three-month high.

Analyst Patrick A. Heller writes at that the price spike is largely related to the investigation of the Libor interest rate manipulation scandal in England. Libor is the benchmark interest rate for more than $500 trillion of securities.

"Although precious metals prices don’t move in a straight line, we may now be experiencing the exposure of the huge physical shortages in the silver market. When these become headline news, prices will take off," said Heller.

He added that if silver prices beat the $30.00 mark and stay there for at least three days, it would continue to increase, pulling gold along with it.

This is what you need to understand about LIBOR: