Gold and silver prices slip again as dollar stays steady
Bullion metals dropped for the second consecutive day today, Monday, 4 February, 2008. Pries fell as dollar remained relatively steady against its rivals. Silver prices also ended considerably lower for the day. Traders 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 $4.1 (0.44%) to close at $909.4 an ounce on the New York Mercantile Exchange after hitting an intraday low of $896. 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 9.3% 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 9 cents (0.5%) to $16.780 an ounce. Silver has gained 12.8% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years. In January 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.
In the currency markets today, the dollar traded mixed against other major currencies, declining against the euro and the British pound and rising against the Japanese yen. The dollar index, which tracks the performance of the greenback, edged down 0.1% at 75.355.
In the energy market today, crude oil rose more than a dollar to settle at $90.02/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 30 (0.26%) at Rs 11,578 per 10 grams. Prices rose to a high of Rs 11,623 per 10 grams and fell to a low of Rs 11,420 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 34 (0.16%) higher at Rs 21,467/Kg. Prices opened at Rs 21,513/kg and fell to a low of Rs 21,125/Kg during the day’s trading.