February 2011 has been a month to remember for precious metals owners. Rising inflation and turmoil in North Africa and the Middle East has reverberated in news headlines around the globe, boosting demand for alternative assets. In fact, February is closing out with the largest monthly increase for gold prices since April 2010. Silver prices are at a 31-year high.

“Continued nervousness about behavior in the Middle East is keeping a solid bid under gold right now,” said Sterling Smith, market analyst at Country Hedging. What started as a startling story of a popular pro-democracy uprising in Egypt has become a wildfire of unrest spreading across the Arab world that shows little sign of abating. Increasing food and commodity prices have been a major factor motivating citizens to risk life and limb in countries where public demonstrations are not often seen.

U.S. officials met on Monday with overseas counterparts in Geneva to discuss the fate of Libya, including measures to pressure Qaddafi out of power and build ties with the nation’s opposition leaders. The regional unrest that ousted Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak has reached Oman, where protesters have clashed with security forces in the province of Sohar.

Gold is “still the flight-to-quality, the safety net trade,” said Bob Haberkorn, senior market strategist with Lind-Waldock in Chicago. “I think there is a high probability that we are going [to hit gold's old high of $1,434 an ounce], says Phil Streible, senior market strategist at Lind-Waldock, “it’s just a matter of when. I think it could be easily in the next couple of weeks.”

U.S. consumers are already feeling the economic effects of this turmoil as they eye rising prices at the gas pump. Oil prices have been rising along with concerns over the future of the oil supply from Libya. The U.S. is not alone in suffering higher prices, however. The Eurozone reported January inflation at 2.3%, higher than its mandate of 2%. The European Central Bank is meeting Thursday, and the debate over whether to raise interest rates will likely take center stage at the meeting.

Brazil’s inflation rate is almost 6%, Russia’s is at 10%, China almost 5%, with the U.K. at almost 4%. Even if central banks raise rates as Russia and China have done recently, it will take a lot of upward movement to return to a positive interest rate environment. In the meantime, a weaker U.S. dollar could support higher gold prices in the midst of any profit taking.

Scott

Scott Carter

Scott Carter is Chief Executive Officer of Goldline International, Inc. and host of The American Advisor talk radio show.

(Sources: “Gold Advances, Capping Monthly Increase on Unrest, Inflation,” Bloomberg, February 28, 2011; “Gold, Silver Firm On Mideast Tumult,” Wall Street Journal, February 28, 2011; “Gold Prices Gain on Geopolitical Unrest,” TheStreet.com, February 28, 2011)