Gold and silver prices drop as demand likely to get hit in coming months
Rising concerns about growth in the US economy pressured bullion metals today, Wednesday, 23 January, 2008. Traders speculated that demand for the yellow metal will reduce if growth slows down in the coming months. US stock market also witnessed some rollercoaster ride today. Silver prices also dropped 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 fell $7.2 (0.8%) to close at $883.1 an ounce on the New York Mercantile Exchange. Earlier in the day, it hit an intraday low price of $877 an ounce. This year, prices have gained 6.8% till date. Last week, gold suffered a loss of 1.8%.
Comex Silver futures for March delivery fell 13.5 cents (0.8%) to $15.97 an ounce. Silver has gained 8% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
Yesterday, 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 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 prices had closed above the $900 mark for the first time on Monday, 14 January, 2008. Since then it has dropped by more than $12.
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 gained on the euro and pound on growing concerns about U.K. and euroz one growth prospects but slipped against Japan's yen. The dollar index, which tracks the performance of the greenback against six other major currencies, was up at 76.429.
In the energy market today, crude oil fell for the second consecutive day on recession concerns and oil closed lower by more than $2/barrel today at $86.99 barrel.
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 lower by Rs 59 (0.5%) at Rs 11,260 per 10 grams. Prices rose to a high of Rs 11,390 per 10 grams and fell to a low of Rs 11,176 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 101 (0.5%) lower at Rs 20,687/Kg. Prices opened at Rs 20,715/kg and fell to a low of Rs 20,481/Kg during the day’s trading.