Gold declines as dollar gains

Gold prices drop marginally while silver remains almost unchanged

A few upbeat economic reports helped dollar gain some strength against its rival currencies today, Wednesday, 05 December, 2007 and this put some pressure on precious metals. Dollar gained against its major rival currencies on anticipation that the Federal Reserve might not cut interest rates in its upcoming policy meeting on 11 December, 2007 as chances of economy heading towards recession is far less. 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 fell $3.9 (0.5%) to close at $803.7 an ounce on the New York Mercantile Exchange today. Last week, prices had slipped by more than 4.5%. 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 was almost unchanged at $14.465 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 12% this year.

In the currency market today, the dollar rose against major counterparts, after upbeat U.S. economic data calmed fears of a looming recession and led many investors to believe the U.S. Federal Reserve won't decide on the 50-basis point interest rate cut next week that some had begun expecting. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.7% at 76.220.

In the energy market, oil prices fell by 83 cents to close at $87.49/barrel after Energy Department report showed that U.S. fuel stockpiles rose last week.

Gold had climbed 27% this year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 12% down against the euro this year.

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