Gold prices strike record high for third consecutive day
Gold struck record new high for third consecutive day today, Thursday, 10 January, 2008. Today’s rally in gold was spurred by comments from Federal Reserve Chairman, Ben Bernanke, who hinted at another interest rate cut and this sent the dollar tumbling down against the rival currencies. Silver prices too gained today.
Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.
Comex Gold for February delivery today rose $11.9 (1.3%) to close at $893.6 an ounce on the New York Mercantile Exchange. During intraday trading prices rose as high as $897.8/ounce. Last week, gold prices gained $23/ounce (2.7%). This year, prices have gained 6.5% till date.
Yesterday gold prices had closed at $881.5/ounce. That closing price was the highest price after a record $873 that gold hit on 21 January, 1980.
Comex Silver futures for March delivery today rose 43.5cents (2.7%) to $16.275 an ounce. The price earlier reached $16.355. Today’s closing price is an all time high price equaling the one reached on 7 November, 2007 (a twenty six year high price at $16.275). Silver has gained 8.8% in 2008. The metal had climbed 15.5% in FY 2007. The metal also has gained for seven straight years.
Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
Today, Federal Reserve Chairman, Ben Bernanke said that U.S. central bank is struggling with a deteriorating economy brought on by a struggling housing market, high energy prices and a weaker stock market. To help situation from worsening further, he hinted that more interest rate cuts are on the way.
In the currency market today, the dollar fell sharply following Bernanke's comments. The dollar index, which tracks the performance of the greenback against a basket of major currencies, dropped 0.7% to 75.885.
In the energy market today crude oil fell almost $2 and settled around $94/barrel, the lowest price in almost two weeks.
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.
Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record.
The Fed reduced federal funds rate three times in FY 2007. The current interest rate stands at 4.5%. The Fed also lowered its discount rate twice, the interest it charges on direct loans it makes to banks, and currently it stands at 4.75%. With these interest rate cuts, dollar has been tumbling down.
At the MCX, gold prices for February delivery closed higher by Rs 130 (1.2%) at Rs 11,243 per 10 grams. Prices rose to a high of Rs 11,279 per 10 grams and rose to a high of Rs 11,279 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 483 (2.4%) higher at Rs 20,828/Kg. Prices opened at Rs 20,317/kg and fell to a high of Rs 20,930/Kg during the day’s trading.
Gold is expected to rally at all-time highs in the first quarter in FY 2008 as higher oil prices and a weaker dollar will continue to boost demand. Market expects another phase of interest rate cut in the end of the month. But gold is slated to average around $800/ounce in FY 2008 as against $696/ounce in FY 2007.