Another dull day for precious metals

Gold and silver prices slip for third straight day as dollar gains against euro

Bullion metals dropped for the third consecutive day today, Tuesday, 5 February, 2008. Pries fell as dollar gained against its rivals, mainly the euro. Silver prices also ended considerably lower for the day. Traders also speculated that dollar will rally in the coming months.

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 April delivery fell $19.1 (2.1%) to close at $890.3 an ounce on the New York Mercantile Exchange after hitting an intraday low of $888.4 earlier in the day. Last Wednesday, 30 January, 2008 prices had hit a high of $941 in the after hours trading. This year, prices have gained 7.2% till date. In Janauary, prices gained 11%, the highest monthly gain since April 2006. Last week, gold prices closed lower by $2.7 (0.3%) against previous close of $916.1.

Comex Silver futures for March today fell by 43.5 cents (2.6%) to $16.345 an ounce. Silver has gained 10.2% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years. In January this year itself, prices climbed 14%.

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.

The Institute for Supply Management's non-manufacturing index, a gauge of almost 90% of the U.S. economy, reportedly fell to 41.9 in January, from 54.4 in December. A reading of less than 50 indicates contraction

In the currency markets today, the U.S. dollar rallied against most major currencies, as currency traders appeared to shrug off dismal U.S. nonmanufacturing sector data and focussed on growing signs of an impending slowdown in Europe. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, surged 0.9% at 76.080.

In the energy market today, crude oil rose fell by more than $1.5 to settle at $88/barrel.

On 31 January, 2008, the Federal Reserve lowered interest rates 0.5% point to 3% today. This was on top of the 75 bps rate cut to 3.5% that Fed did earlier this year. The interest rate cuts are to avoid the US economy from plunging into recession.

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%.

Gold had climbed 31% ($200/ounce) 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 34 (0.3%) at Rs 11,612 per 10 grams. Prices rose to a high of Rs 11,533 per 10 grams and fell to a low of Rs 11,321 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 333 (1.6%) lower at Rs 21,134/Kg. Prices opened at Rs 21,436/kg and fell to a low of Rs 21,010/Kg during the day’s trading.