Gold near all time high

Gold Prices are a dollar short of kissing the all time high record price of $873

Precious metals once again ended considerably higher today, 03 January, 2008. Gold prices rallied and crossed the $870/ounce mark during intraday trading after crude oil prices continued to hover around $100/barrel mark. Weakening of the dollar also contributed to higher gold prices.

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 $9.1 (1.1%) to close at $869.1 an ounce on the New York Mercantile Exchange on Thursday, 03 January, 2008. Prices touched $872 during intraday trading. With today’s gain, gold has gained 3.7% in 2008. Last year, on 7 November, prices had touched $848/ounce. Today’s closing prices was the highest price after a record $873 that gold hit on 21 January, 1980.

Comex Silver futures for March delivery rose 21 cents (1.4%) to $15.5 an ounce. Prices touched 26 year high on 7 November, 2007, after reaching $16.275. With today’s gain, silver has gained 3.9% 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 drifted lower against most major currencies, unable to hold earlier gains on the eve of key data about the state of employment in the U.S. economy. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, edged down 0.2% to 75.835. The dollar traded near a one-month low against the euro.

In the energy market today crude oil continued to hover around $100/barrel mark. Oil reached a record $100.09 a barrel before erasing gains. It closed marginally lower after an Energy Department report showed that U.S. gasoline and diesel inventories rose as refineries increased operating rates. In FY 2007, crude prices gained $57%.

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.

At the MCX, gold prices for February delivery closed higher by Rs 96 (0.88%) at Rs 10,975 per 10 grams. Prices rose to a high of Rs 11,014 per 10 grams and fell to a low of Rs 10,831 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 169 (0.84%) higher at Rs 20,053/Kg. Prices opened at Rs 19,853/kg and went to a high of Rs 20,144/Kg during the day’s trading.

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.