Precious metals gain back

Gold and silver prices rise on speculation about a weaker dollar

Gold and silver prices rose today, Tuesday, 18 December, 2007. Precious metal prices rose after the traders speculated that Federal Reserve will go for more interest rate cuts to ease the credit market condition in the US. Gold generally moves in the opposite direction of the U.S. currency.

Comex Gold for February delivery rose $8.1 (1%) to close at $807.4 an ounce on the New York Mercantile Exchange today. Earlier the price rose to almost $811.4/ounce. Last week, prices rose by almost 0.3% ($2.2/ounce). 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 rose 18.5 cents (1.3%) to $14.165 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 9.5% 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.

In the currency market today, the dollar was mostly higher today as investors weighed downbeat housing starts data against expectations that the European Central Bank's aggressive liquidity injections and the Federal Reserve's newly announced mortgage plan will help will ease the global credit crisis. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, was flat at 77.405.

In the energy market, oil prices slipped by 14 cents and closed at $90.49/barrel after Turkish troops began to withdraw from Iraq and on speculation that warmer weather in the eastern U.S. will curb fuel use.

Gold had climbed 26% 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%.

Last week on 11 December, 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%.

Dollar had been witnessing a free fall since Federal Reserve cut interest rates in September. Before 11 December, 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 higher by Rs 92 (0.9%) at Rs 10,262 per 10 grams. Prices rose to a high of Rs 10,310 per 10 grams and fell to a low of Rs 10,140 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 198 (1.07%) higher at Rs 18,692/Kg. Prices opened at Rs 18,495/kg and went to a high of Rs 18,842/Kg during the day’s trading.