Gold prices strike another new high as dollar weakens on further rate cut hopes
Precious metal prices soared on Monday, 28 January, 2008 as the dollar fell against the euro, enhancing the metal's appeal as an alternative investment. Expectations about another rate cut from Federal Reserve in its upcoming meeting on January end also boosted prices. 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 $16.4 (1.8%) to close at $927.1 an ounce on the New York Mercantile Exchange. Earlier in the day, it hit an intraday price of $929.8 an ounce. Last week, gold prices gained 3.3%. This year, prices have gained 10.8% till date.
Comex Silver futures for March delivery rose 26 cents (1.6%) to $16.75 an ounce. Silver has gained 12.5% 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 today, the dollar dropped as traders increased speculation that the Federal Reserve will cut the target lending rate by a half- percentage point this week to prevent the U.S. from heading into a recession. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, lost 0.6% to 75.510.
In the energy market today, crude oil rose on speculation that the Federal Reserve will cut its interest rates this week. Crude oil for March delivery rose $0.28 (0.3%) to settle at $90.99 a barrel.
Last 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 196 (1.7%) at Rs 11,728 per 10 grams. Prices rose to a high of Rs 11,745 per 10 grams and fell to a low of Rs 11,547 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 289 (1.4%) higher at Rs 21,437/Kg. Prices opened at Rs 21,200/kg and rose to a high of Rs 21,483/Kg during the day’s trading