Reply #27: UPDATE 2-Silver hits new 22-year peak on fund launch hopes [View All]

LONDON, March 24 (Reuters) - Silver spiked to a new high in more than 22 years on Friday, with investors pouring money into the metal on expectations the first silver-backed security is closer to approval by U.S. authorities.

Gold lacked impetus to move up and traded in a tight band of $2 an ounce, but platinum and palladium extended gains.

Silver has risen more than 21 percent this year mainly on hopes of the launch of the security, known as exchange-traded funds (ETFs), despite opposition from a group representing users in the United States.

"The initial market reaction, when the ETF news came out, was a little bit hesitant but it has got back into its stride now," said Stephen Briggs, economist at SG Corporate and Investment Bank.

"It hasn't yet been launched. It's still got to go through the formalities and it remains to be seen how much interest there is going to be, but the market is clearly assuming that there is going to be great interest."

Spot silver <XAG=> rose as much as $10.70 an ounce before easing to $10.66/10.69 an ounce by 1100 GMT, compared with $10.63/10.66 in New York late on Thursday.

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"The creation of a silver ETF would require the holding of silver in allocated accounts, which would result in the removal of large amounts of silver from the open markets. If the silver ETF is approved, it will mean higher product costs and lost jobs in our industry," it said.

LIQUIDITY CRUNCH

Analysts said the fund had potential to attract up to 4,000 tonnes of silver, which would be equal to nearly two months of consumption.

The silver market is expected to remain in deficit in the next couple of years as industrial and consumer demand is seen outpacing the mine supply, estimated at around 20,000 tonnes in the current year.

Silver, used in making jewellery and industrial goods, also took direction from copper that hit a record $5,250 on Thursday after news of a landslide near Freeport-McMoRan Copper & Gold Inc.'s <FCX.N> giant Grasberg mine in Indonesia.

Dealers expected light selling in silver as the weekend approached but the metal was supported around $10.40 an ounce. Its upside target was pegged at $10.80.

Spot gold <XAU=> was at $549.50/550.25 an ounce, against $549.90/550.80 in New York and stayed below a 25-year high above $574 an ounce hit in early February.

Gold's failure to breach a key resistance of $560 has disappointed investors and encouraged some to sell gold and buy silver, dealers said.

Palladium <XPD=> increased to $324 an ounce, the highest in nearly two years, before falling to $321/324. It closed in the U.S. market at $318/323.

Platinum <XPT=> rose as much as $1,045 an ounce before easing to $1,040/1,044, against $1,042/1,047 in New York. (Additional reporting by Lewa Pardomuan in Singapore)



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