Prices soar in after hours trading as Federal Reserve cuts interest rate
Another spate of interest rate cut by Federal Reserve pushed gold prices to new high today, Wednesday, 30 January, 2008. Though gold and silver prices ended lower for the day, prices rebounded in the after hours trading following interest rate cut from Federal Reserve. The dollar weakened as usual boosting the appeal of the precious metal as an alternative investment. Silver prices also ended lower today but then rebounded.
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 April delivery rose $14.9 (1.6%) to close at $941.1 an ounce on the New York Mercantile Exchange in the after hours trading. Before the Fed announcement, the contract fell $4.50 to close at $926.30. Last week, gold prices gained 3.3%. This year, prices have gained 10% till date.
Comex Silver futures for March delivery fell 4 cents (0.3%) to $16.76 an ounce. but But prices rebounded after the Fed rate cut and was up 10.50 cents at $16.905.Silver has gained 12.5% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
The Federal Reserve lowered interest rates 0.5% point to 3% today. This was after the 75 bps rate cut to 3.5% that Fed did last week. The interest rate cuts are to avoid the US economy from plunging into recession.
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 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%.
In the currency markets today, the dollar weakened against most of its major counterparts after the Fed rate cut. The dollar index, which tracks the performance of the greenback against six other major currencies, declined 0.6% at 75.125.
In the energy market today, crude oil rose to a two-week high after the U.S. Federal Reserve cut its benchmark interest rate. Crude oil for March delivery rose 69 cents (0.8%) to settle at $92.33 a barrel.
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.
At the MCX, gold prices for February delivery closed lower by Rs 39 (0.33%) at Rs 11,662 per 10 grams. Prices rose to a high of Rs 11,735 per 10 grams and fell to a low of Rs 11,617 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 48 (0.22%) lower at Rs 21,415/Kg. Prices opened at Rs 21,422/kg and fell to a low of Rs 21,340/Kg during the day’s trading.