Gold prices gain marginally as Central Banks speak about injecting liquidity
Gold prices closed marginally higher today after Federal Reserve along with other Central banks sent the message that it will inject more liquidity in the system to ease the credit related problems in the economy. The same boosted gold’s appeal against inflation. Dollar traded mixed today. But silver prices dropped today. Gold generally moves in the opposite direction of the U.S. currency.
Comex Gold for February delivery rose $1.7 (0.2%) to close at $818.8 an ounce on the New York Mercantile Exchange today after hitting an intra day high of $822/ounce. 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 dropped 4 cents (0.3%) at $14.825 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 15% this year.
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.
The Federal Reserve said it would inject cash into money markets through some term-auction facilities. The Fed, along with the Bank of England, the European Central Bank, the Swiss National Bank and the Bank of Canada, will provide cash to the money market to get through in the coming months.
Yesterday, Federal Reserve lowered the federal funds rate by a quarter-point to 4.25%. The Fed also lowered its discount rate, the interest it charges on direct loans it makes to banks, by a quarter-point to 4.75%.
In the currency market today, the dollar was mixed slipping against the euro and pound but jumping against the yen, in line with growing risk appetite. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.1% at 76.150.
In the energy market, oil prices soared by more than $4 today and ended above $94/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. Before yesterday, Federal Reserve had cut the fed funds rate by a quarter-point to 4.50% on 31 October, 2007. 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 10,376 per 10 grams. The closing price is Rs 14 (0.135%) higher as against previous closing price. Prices rose to a high of Rs 10,422 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 March delivery closed Rs 71 (0.4%) lower at Rs 19,170/Kg. Prices opened at Rs 19,435/kg and fell to a low of Rs 19,170/Kg during the day’s trading.