Bullion metals turn pale

Gold and silver prices drop as dollar strengthens for first time in five days

Precious metals dropped for the second consecutive day today, Wednesday, 17 January, 2008. Prices eased today further after the greenback strengthened against its rivals. Crude prices also slipped by more than a dollar today. Silver prices also slipped 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 fell $20.60 (2.3%) to close at $882 an ounce on the New York Mercantile Exchange. Yesterday, during intraday trading prices rose as high as $916.1/ounce, but the slipped. This year, prices have gained 5.2% till date.

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.

Before today and yesterday, gold had struck consecutive record highs for six consecutive sessions. Prices closed above the $900 mark for the first time on Monday, 14 January, 2008.

Comex Silver futures for March delivery fell 40.5cents (2.5%) to $15.895 an ounce. Silver has gained 6.5% 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%.

In the currency market today, the dollar index, which tracks the value of the greenback against a basket of other major currencies, rose for the first time in five days, up 1% to 76.3 after better-than-expected U.S. output data. The dollar rose as much as 1.4% against the euro.

In the energy market today, crude oil fell to a four-week low after a U.S. Energy Department report showed that supplies rose more than expected. Crude oil fell by $1.6 (1.8%) to close at $90.84 a barrel.

Last week, 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.

Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record.

At the MCX, gold prices for February delivery closed lower by Rs 189 (1.7%) at Rs 11,182 per 10 grams. Prices rose to a high of Rs 11,361 per 10 grams and fell to a low of Rs 11,102 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 343 (1.6%) lower at Rs 20,554/Kg. Prices opened at Rs 20,880/kg and fell to a low of Rs 20,412/Kg during the day’s trading.