NEW YORK (Dow Jones)-Silver futures neared 31-year highs Friday as investors flocked to the metal as both an inflation hedge and beneficiary of the global economic recovery.

Silver for February delivery rose 72.6 cents, or 2.3%, to settle at $32.298 a troy ounce on the Comex division of the New York Mercantile Exchange. It was the metal’s strongest close since March 7, 1980.

“It’s riding on the back of gold at the moment, which is being driven by inflation fears,” said Stephen Flood, director of Dublin-based bullion dealer GoldCore.

Silver, a precious metal akin to gold, is benefiting as a hedge against rising consumer and producer prices, with inflation gaining in Europe and China. While inflation in the U.S. remains tame, some believe the Federal Reserve won’t be able to control longer-term price pressures stemming from ultralow interest rates-which also boost the allure of non-interest bearing silver and gold-and Fed purchases of U.S. Treasurys to stimulate the economy.

At the same time, the economic growth that is sparking inflation fears is also prompting a resurgence in manufacturing and consumer purchases. That’s a further boon for prices of silver, which is more widely used in manufacturing than gold.

“It’s benefiting from optimism on the global economy,” said Ralph Preston, market analyst at Heritage West Financial.

Silver’s use in electronics, solar panels and medical applications is helping offset declining demand for use in photographic film as digital photography becomes ever more ubiquitous.

Silver, which has gained 5.4% this year and 20.5% since a two-month low hit Jan. 25, would probably be at record highs now but for that spike in 1980, when the Hunt brothers of Texas famously attempted to corner the silver market and pushed prices above $40 per troy ounce.

“It’s a much more orderly market” nowadays, Flood said.

But as silver’s allure as an inflation hedge and quasi-industrial metal rises, short-term investors have been piling in, prompting some concern that the metal may be due for a big price pullback.

 Recent buying in silver has been a “fund feeding frenzy,” including a “camp that refuses to see it for being a bubble in the making,” Jon Nadler, an analyst at Montreal bullion dealer Kitco Metals, said in a note.

Silver is a short-term investor darling because it is cheap compared with gold prices, and its market is much smaller and more volatile than gold’s, increasing both the risk and the chances for quick profits.

“It continues to be the favorite of speculators,” said Bill O’Neill, a principal with Logic Advisors.

Investor interest is also surging in silver-backed exchange-traded funds, which trade like stocks and back their shares with bullion bought on the market.

Holdings in the world’s largest such fund, iShares Silver Trust, rose 1.611 million ounces in the week to Feb. 17. Zurich Cantonal Bank’s silver ETF reported silver inflows of 296,000 ounces over the same period.

In addition to the outlook on the economic recovery and rising inflation, silver is gaining extra support as a cheaper so-called safe-haven investment than gold amid worries about unrest in the Middle East and sovereign debt problems in Europe.

On Friday, Portugal’s debt problems were of particular concern as the cost of insuring Portuguese debt rose amid renewed pressure from within the euro zone for the country to seek a bailout from the European Union and International Monetary Fund.

Amid the price gains, UBS upped its one-month silver forecast to $35 from $25.50. The bank also increased silver’s three-month price estimate to $33 from $27.

Gold and silver are also receiving a lot of attention from the physical market, particularly in Asia, where demand for metal bars, coins and jewelry is particularly high.

Some support may also be coming from silver miners boosting their hedging programs as they expand production and seek insurance against increasingly volatile prices.

-By Matt Whittaker, Dow Jones Newswires; 212-416-2139; [email protected]
-Francesca Freeman contributed to this article.