Gold registers good gain for the month

Gold registers highest monthly gain in almost two years

It was strongest monthly gain for gold after gold prices rose to new high today, Thursday, 31 January, 2008. Gold and silver prices had rebounded in the after hours trading following interest rate cut from Federal Reserve yesterday. The dollar weakened as usual boosting the appeal of the precious metal as an alternative investment. Silver prices also ended considerably higher for the day.

Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength. The dollar is down 1.8% in January against a weighted basket of six major currencies.

Comex Gold for April delivery rose $1.7 (0.2%) to close at $928 an ounce on the New York Mercantile Exchange. Yesterday prices had hit a high of $941 in the after hours trading. Yesterday, before the Fed announcement, the contract fell $4.50 to close at $926.30. This year, prices have gained 11% till date, the highest monthly gain since April 2006.

Comex Silver futures for March today rose 23.5 cents (1.4%) to $16.995 an ounce. Silver has gained 14% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

Yesterday, the Federal Reserve lowered interest rates 0.5% point to 3% today. This was after the 75 bps rate cut to 3.5% that Fed did last week. The interest rate cuts are to avoid the US economy from plunging into recession.

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 erased losses against the yen and maintained its early gain against the euro Thursday. However, the dollar index, which tracks the performance of the greenback against six other major currencies, was at 75.332, down from 75.499.

In the energy market today, crude oil fell on concern that the U.S. is on the verge of a recession. Crude oil for March delivery fell 58 cents (0.6%) to settle at $91.75 a barrel.

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 45 (0.4%) at Rs 11,707 per 10 grams. Prices rose to a high of Rs 11,748 per 10 grams and fell to a low of Rs 11,655 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 261 (1.2%) higher at Rs 21,676/Kg. Prices opened at Rs 21,438/kg and went to a high of Rs 21,770/Kg during the day’s trading.