Gold ends marginally higher

Precious metals register modest gain anticipating another interest rate cut

Gold struck another record new high during intra day trading today, Wednesday, 09 January, 2008 but then ended marginally higher at the close. Gold rose on speculation that the Federal Reserve will continue to cut interest rates during the end of this month thus weakening the dollar further. Gold prices struck a new all time record yesterday as oil prices increased and dollar traded mixed against its rivals. Increasing tensions between US and Iran had also added to the rally. 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 $1.4 (0.16%) to close at $881.7 an ounce on the New York Mercantile Exchange. During intraday trading prices rose as high as $894.4/ounce. Last week, gold prices gained $23/ounce (2.7%). This year, prices have gained 5.3% till date.

Yesterday gold prices had closed at $880/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 2.5 cents (0.2%) to $15.84 an ounce. Prices touched 26 year high on 7 November, 2007, after reaching $16.275. Silver has gained 6.1% 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 measures the value of the U.S. currency against a basket of six major currencies, gained as much as 0.5% today to 76.50.

In the energy market today crude oil crude oil fell after an Energy Department report showed that U.S. fuel stockpiles surged last week as refineries bolstered operating rates.

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 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.