Production halt at South Africa and lower borrowing cost boost bullion metal price
Precious metal prices soared on Friday, 25 January, 2008 today as lower borrowing costs increased the appeal of the precious metal as a hedge against inflation. Price also rose after severe power shortages forced major mining companies to shut down their operations in South Africa, the world's second-largest gold producer and biggest platinum producer. Silver prices also 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 rose $4.9 (0.5%) to close at $910.7 an ounce on the New York Mercantile Exchange. Earlier in the day, it hit an intraday price of $924.3 an ounce. Prior to Friday, gold prices had reached a record $916.10 on 15 January. For the week, gold prices gained 3.3%. This year, prices have gained 9% till date.
Comex Silver futures for March delivery rose 15.7 cents (1%) to $16.49 an ounce. Silver has gained 11% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
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 on Friday, the dollar was mostly higher against major counterparts, holding the bulk of its gains on the euro, yen and Swiss franc after U.S. stocks turned lower, but slipping against the British pound sterling on expectations of a further cut to U.S. interest rates next week.
In the energy market on Friday, crude oil rose for a second day on speculation that the U.S., the world's largest energy consuming country, may avoid recession after the announcement of an economic stimulus package. Crude oil for March delivery rose $1.30 (1.5%) to settle at $90.71 a barrel.
Earlier this week, Federal Reserve slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations. Federal Reserve’s decision came as a surprise to everyone but Fed took the same as stocks markets worldwide, had been plunging on fear that US economy would be hitting a recession soon.
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 higher by Rs 48 (0.42%) at Rs 11,532 per 10 grams. Prices rose to a high of Rs 11,654 per 10 grams and fell to a low of Rs 11,491 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 131 (0.62%) higher at Rs 21,148/Kg. Prices opened at Rs 21,070/kg and rose to a high of Rs 21,320/Kg during the day’s trading.