Precious metals glitter for second straight day

Gold and silver prices rise on supply concerns

Bullion metals rose for the second consecutive day today, Thursday, 7 February, 2008. Prices rose as news of potential supply shortages in South Africa hit the market. Chances of interest rate cut across the world also fuelled up prices. 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.

Comex Gold for April delivery rose $5 (0.6%) to close at $910 an ounce on the New York Mercantile Exchange after hitting an intraday high of $915.4 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 9.5% 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 rose by 22.5 cents (1.4%) to $16.775 an ounce. Silver has gained 12% 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%.

The Bank of England today cut its benchmark lending rate for the second time since December and the European Central Bank had also signaled it might lower rates later this year.

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.

As per reports, severe power shortages in South Africa, the world's second-largest gold producer are posing serious threats to mine production.

In the currency markets today, the dollar surged against the British pound sterling and was also up against the euro, after the Bank of England cut its benchmark a quarter point as expected and the European Central Bank held rates steady. The dollar index, which tracks the performance of the greenback against a basket of six major currencies, was at 76.701, up from 76.095.

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 April delivery closed higher by Rs 46 (0.4%) at Rs 11,536 per 10 grams. Prices rose to a high of Rs 11,584 per 10 grams and fell to a low of Rs 11,435 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 209 (0.98%) higher at Rs 21,469/Kg. Prices opened at Rs 21,264/kg and rose to a high of Rs 21,575/Kg during the day’s trading.