Chances of another interest rate cut puts more shine on gold
Dollar slipping against its rival currencies continued to impart shine to precious metals today, Monday, 10 December, 2007. The dollar fell against the euro, as investors positioned for tomorrow’s expected Federal Reserve interest rate cut. Gold generally moves in the opposite direction of the U.S. currency.
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 and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.
Comex Gold for February delivery rose $13.3 (1.7%) to close at $813.5 an ounce on the New York Mercantile Exchange today. Last week, prices rose by more than 1.4%. On, 7 November, prices had touched $848/ounce. It was the highest price after a record $873 on 21 January, 1980.
Comex Silver futures for March delivery gained 34.5 cents (2.4%) at $14.85 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 15% this year.
In the currency market today, the dollar index, which tracks the performance of the dollar against a basket of other major currencies, dropped 0.3% to 76.10. The Federal Reserve is expected to cut interest rates by a quarter-percentage point on Tuesday for a third straight meeting.
In the energy market, oil prices fell by 42 cents to close at $87.86/barrel.
Gold had climbed 28% this year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 11% down against the euro this year.
In 2006, silver had jumped 46% while gold gained 23%.
Dollar had been witnessing a free fall since Federal Reserve cut interest rates in September. On 31 October, 2007, Federal Reserve again 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.
At the MCX, gold prices for February delivery closed at Rs 10,337 per 10 grams. The closing price is Rs 129 (1.3%) higher as against previous closing price. Prices rose to a high of Rs 10,376 per 10 grams and fell to a low of Rs 10,217 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 285 (1.5%) higher at Rs 19,439/Kg. Prices opened at Rs 19,168/kg and went to a high of Rs 19,500/Kg during the day’s trading.