Precious metals gain for second straight day

Increasing chances of rate cut help gold cross the $800 mark once again

Dollar slipping against most of the major currencies for second consecutive day helped precious metals once again gain some of the glitter today, Tuesday, 4 December, 2007 that they had lost last week. Gold again crossed $800 mark for the first time this week. Dollar slipped against its major rival currencies on anticipation that the Federal Reserve will cut interest rates by another half percentage point in its upcoming policy meeting on 11 December, 2007. 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 $12.9 (1.6%) to close at $807.6 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 rose 25.5 cents (1.8%) to $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 slipped versus most major counterparts, undermined by increasing expectations that the U.S. Federal Reserve will further cut interest rates next week. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, fell 0.4% at 75.685.

In the energy market, oil prices fell by almost a dollar today and closed at $88.32/barrel. Prices fell as traders became more certain that OPEC will decide t increase production in tomorrow’s meeting.

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%.

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 10,286 per 10 grams. The closing price is Rs 137 (1.35%) higher as against previous closing price. Prices rose to a high of Rs 10,309 per 10 grams and fell to a low of Rs 10,107 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 244 (1.3%) higher at Rs 19,158/Kg. Prices opened at Rs 18,925/kg and went to a high of Rs 19,238/Kg during the day’s trading.