Gold at all time high

Gold prices close at $880 per ounce as commodities rally

Precious metals ended considerably higher today, Tuesday, 08 January, 2008. Gold prices struck a new all time record as oil prices increased and dollar traded mixed against its rivals. Increasing tensions between US and Iran added to the rally. Silver prices too gained.

Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength. Gold gained 31% in FY 2007 while oil jumped 57% and the dollar fell 9.5% against the euro.

Comex Gold for February delivery today rose $18.30 (2.1%) to close at $880.3 an ounce on the New York Mercantile Exchange. During intraday trading prices rose as high as $883.8/ounce. Last week, gold prices gained $23/ounce (2.7%). This year, prices have gained 5.1% till date.

Prices had touched $872 during intraday trading on 3 January, 2008 and finally had closed at $869.3/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 52.5 cents (3.4%) to $15.815 an ounce. Prices touched 26 year high on 7 November, 2007, after reaching $16.275. Silver has gained 5.9% 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 was mixed, as investors weighed weak home-sales data against remarks from a U.S. Federal Reserve official suggesting he wouldn't support a deeper cut to interest rates. The dollar index, which tracks the performance of the greenback against a basket of other currencies, edged down 0.1% to 76.095.

In the energy market today crude oil rose more than $1 a barrel in New York on speculation that a government report will show U.S. inventories fell for an eighth week and as investors purchased commodities as an inflation hedge.

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. Market anticipates that there will be more rate cut in the coming year.

Gold is expected to rally to 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 o 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.