Gold rallies to twenty eight year high as crude kisses $100 mark and dollar weakens
Precious metals ended considerably higher today, 02 January, 2008, the first trading day of FY 2008. Gold prices rallied and crossed the $864/ounce mark during intra day trading after crude oil prices hit a record roof touching the $100 mark for the first time ever. 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 $22 (2.6%) to close at $860 an ounce on the New York Mercantile Exchange on Wednesday, 02 January, 2008. prices touched $864.5 during intraday trading. 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 37 cents (2.5%) to $15.29 an ounce. Prices touched 26 year high on 7 November, 2007, after reaching $16.275. 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 extended losses against most major rivals, mainly against the yen after a weak Institute of Supply Management report. The ISM report said the U.S. factory sector contracted in December for the first time in nearly a year as new orders collapsed.
The dollar index, which measures the greenback against a basket of six major currencies, was down about 0.8% at 75.970.
In the energy market today crude oil rose to $100 a barrel for the first time in New York as record global fuel consumption threatens to outpace production. It extended FY 2007’s rally when crude 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. Crude is 57% higher on a yearly basis. 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 273 (2.6%) at Rs 10,879 per 10 grams. Prices rose to a high of Rs 10,920 per 10 grams and fell to a low of Rs 10,616 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 406 (2.1%) higher at Rs 19,884/Kg. Prices opened at Rs 19,490/kg and went to a high of Rs 20,020/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.