* Oil, grains rallies, inflation worries underpin gold
* US gold futures volume set for one of weakest this year
* Silver soars to 31-year high;gold ratio lowest since '83
* Coming up: US FOMC March meeting minutes Tuesday
(Rewrites, updates with comment, details, market activity)
By Frank Tang
NEW YORK, April 4 (Reuters) - Gold rose and silver surged
to 31-year highs on Monday, as fresh gains that pushed oil and
grain prices to their highest since 2008 stoke inflation
worries.
While silver streaked ahead, rising to its strongest
relative to gold since 1983 after the Hunt Brothers cornered
the silver market, bullion prices have struggled for the past
month to sustain new highs.
Activity in the U.S. futures market on Monday was less than
half the average, set to be one of the weakest this year, as
the metal struggled to extend its record high $1,447.40 an
ounce set on March 24.
"There is no question that the inflation factor is
supporting gold," said Bruce Dunn, vice president of precious
metals dealer Auramet Trading. "Both gold and silver are
benefiting from speculative buying and good demand from
physical bars and coins."
Spot gold <XAU=> rose 0.4 percent to $1,433 an ounce by
3:34 p.m. EDT (1934 GMT), off an earlier high of $1,438.55 an
ounce.
U.S. gold futures for June delivery <GCM1> settled up 0.3
percent to $1,433. Total COMEX trade was less than 82,000 lots,
one of the quietest sessions this year, preliminary Reuters
data showed.
Rising oil and grain prices boosted gold's inflation hedge
appeal. U.S. oil rose to a 2-1/2-year highs on geopolitical
risks to supply from the Middle East, while corn futures
rallied to the highest level since the 2008 global food crisis
due to very tight supplies. [] []
Silver <XAG=> climbed to its highest in 31 years at $38.58
an ounce, sending the gold-to-silver ratio to its lowest level
in 18 years. It was later up 2 percent at $38.48.
Silver prices are fast closing in on $40 an ounce, lifted
by interest in the metal as a cheaper proxy for gold and
expectations that industrial demand is set to improve. But
analysts remain wary of silver's extreme volatility, which has
led to some heart-stopping reversals in recent years.
[]
"There is a huge amount of speculative drive behind silver,
and that is off the back of gold," said Societe Generale
analyst David Wilson.
ECB RATE HIKE, DOLLAR STRENGTH EYED
Bullion rose as the the euro hovered near a five-month peak
against the dollar, with the ECB expected to raise rates by 25
basis points from a record low in reaction to rising
inflationary pressures in the euro zone, with two more 25 basis
point hikes factored in by year-end. <ECBWATCH> []
Bullion investors chose to side with expectations of a
weakening dollar after the ECB meeting this week, as rising
interest rates are generally negative for gold, as they raise
the opportunity cost of holding non-yielding assets.
Even as most economists agree the Fed will not tighten
monetary policy in the short term, recent hawkish comments by
top Fed officials are weighing on bullion investor sentiment.
On Monday, Atlanta Fed President Dennis Lockhart said on
Monday U.S. inflation is likely to remain low for now, but
policymakers will keep a close eye on potentially
self-fulfilling consumer expectations for higher prices.
[]
Last November, the Fed initiated a $600 billion bond buying
program -- dubbed QE2 because it is the second round of
quantitative easing -- which is scheduled to end in June. Gold
has been a major beneficiary since the Fed has kept short-term
rates near zero since December 2008.
Gold is also benefiting from concerns some smaller euro
zone economies such as Portugal and Ireland will continue to
struggle with sovereign debt, and from unrest in the Middle
East and North Africa.
For platinum group metals, platinum <XPT=> rose 1 percent
to $1,782 an ounce, while palladium <XPD=> gained 1.5 percent
to $781.22.
Prices at 3:35 p.m. EDT (1935 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCM1> 1432.20 4.10 0.3% 0.8%
US silver <SIK1> 38.494 0.762 0.0% 24.4%
US platinum <PLN1> 1787.00 10.10 0.6% 0.5%
US palladium <PAM1> 784.40 9.35 1.2% -2.4%
Gold <XAU=> 1433.00 5.02 0.4% 1.0%
Silver <XAG=> 38.48 0.74 2.0% 24.7%
Platinum <XPT=> 1782.00 17.00 1.0% 0.8%
Palladium <XPD=> 781.22 11.27 1.5% -2.3%
Gold Fix <XAUFIX=> 1435.50 3.00 0.2% 1.8%
Silver Fix <XAGFIX=> 38.46 83.00 2.2% 25.6%
Platinum Fix <XPTFIX=> 1781.00 2.00 0.1% 2.9%
Palladium Fix <XPDFIX=> 785.00 5.00 0.6% -0.8%
(Additional reporting by Jan Harvey in London;editing by
Sofina Mirza-Reid)
