Precious metals register marginal gains

Falling oil price and recovering dollar cap precious metals’ gains

Gold and silver prices fell earlier today, Monday, 17 December, 2007 but ended the day with limited or marginal gains. Gold's gains were limited after the euro fell for the third straight session against the dollar. Falling oil price and strengthening dollar capped precious metals’ earlier gains of the day. Gold generally moves in the opposite direction of the U.S. currency.

Comex Gold for February delivery rose $1.3 (0.16%) to close at $799.3 an ounce on the New York Mercantile Exchange today. Earlier the price fell to almost $792/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 were almost unchanged at $13.98 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 8% 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 weakened earlier but then began trading mostly higher, benefiting from U.S. fund inflow data and weak data from the eurozone. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.07% at 77.380.

In the energy market, oil prices slipped by 64 cents and closed at $90.6/barrel after traders became more concerned about economic growth.

Gold had climbed 25% 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 unchanged at Rs 10,170 per 10 grams. Prices rose to a high of Rs 10,199 per 10 grams and fell to a low of Rs 10,081 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 24 (0.13%) lower at Rs 18,494/Kg. Prices opened at Rs 18,576/kg and fell to a low of Rs 18,253/Kg during the day’s trading.