Gold and silver rise to new highs

Tumbling dollar and spiraling crude impart all the shine to precious metal prices

Dollar stumbling to a new fresh low against its rival currencies sent precious metals to new highs today, Tuesday, 6 November, 2007. Crude prices spiraling above $97/barrel also lent a hand in this rising price of bullion metals. Gold prices touched highest level I 28 years. Silver price too was at highest level in 26 years.

Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices. Rising crude increases inflationary pressures. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Comex Gold for December rose $12.6 (1.6%) to close at $823.4 an ounce on the New York Mercantile Exchange today. Earlier in the day, prices touched $827.2/ounce. It was the highest price after a record $873 on 21 January, 1980.

Comex Silver futures for December delivery rose 59.5 cents (4%) to $15.38 an ounce. The metal has climbed 19% this year. For the month of October, prices gained 3.7%.

Gold had climbed 18% in the past two months (Sept-Oct) as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. In October itself, gold prices gained 6%. The metal's October rally was the fourth straight monthly gain.

In 2006, silver had jumped 46% while gold gained 23%.

In the currency market today, the dollar traded down against the euro after sinking to new record lows, as investors weighed ongoing credit woes and surging crude-oil futures. The dollar index, which tracks the greenback against a basket of six major currencies, dropped 0.5% at 76.05.

Crude oil price today climbed as high as $97.1 a barrel today.

On 31 October, 2007, Federal Reserve cut the fed funds rate by a quarter-point to 4.50% and said that the recent spike in commodity prices may put renewed upward pressure on inflation. Prior to that, Federal Reserve had cut interest rates by half percentage point on 19 September, 2007.

In recent times, the weakening of dollar have continued to affect the price of the metal. Dollar had been witnessing a free fall since Federal Reserve cut interest rates in September. The U.S. currency has lost almost 9.5% against the euro this year and has fallen 4% since the September rate cut.

Gold prices have jumped 15% during the third quarter and it is the most since 1999. The yellow metal has climbed 29% this year. Since the rate cut in September, prices have gone up by almost 12%.

At the MCX, gold prices for December delivery closed at Rs 10,398 per 10 grams. The closing price is Rs 132 (1.3%) higher as against previous closing price. Prices rose to a high of Rs 10,429 per 10 grams and fell to a low of Rs 10,250 per 10 grams during the day’s trading.

At the MCX, silver prices for December delivery closed Rs 527 (2.7%) higher at Rs 19,854/Kg. Prices opened at Rs 19,300/kg and rose to a high of Rs 19,970/Kg during the day’s trading.