Precious metals register fall

Gold prices tumble to three weeks low and silver drops more than 4%

Gold and silver prices fell today, Thursday, 13 Decemebr, 2007, as dollar strengthened against its rivals. Gold was back trading below $800/ounce in the morning hours. It was the lowest trading price of gold in three weeks. Gold generally moves in the opposite direction of the U.S. currency.

Comex Gold for February delivery fell $14.8 (1.8%) to close at $804 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 dropped 60 cents (4%) at $14.225 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 11% 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 rose against the euro, yen and pound, after data showed bullish retail sales and wholesale inflation at a 34-year high in November reduced investors' expectations of further aggressive interest rate cuts by the U.S. Federal Reserve. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.6% at 76.595.

Yesterday, the Federal Reserve said it would inject cash into money markets through some term-auction facilities. On Tuesday, 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%.

In the energy market, oil prices slipped by more than $1/barrel.

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%.

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.