Gold and silver prices drop today after four consecutive days of rise
Bullion metals fell today, Tuesday, 12 February, 2008. Prices rose as crude oil prices also softened a bit. Prices of gold and silver had been raying since the past few days. Reports that imports of gold by India, world’s largest consumer of gold, declined in FY 2007 also led to the precious metal’s fall today.
Prices had increased for four straight days as crude prices rallied boosting the appeal of the precious metal as a hedge against inflation. Also, news of potential supply shortages in South Africa continued to boost the prices. Silver prices also ended considerably lower 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 fell $15.6 (1.7%) to close at $911.1 an ounce on the New York Mercantile Exchange. On 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 January, prices gained 11%, the highest monthly gain since April 2006. Last week, gold prices closed higher by $8.8 (0.96%) against previous close of $913.5.
Comex Silver futures for March today fell by 22 cents (1.2%) to $17.25 an ounce. Silver has gained 14.9% 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 also fell today after the Group of Seven officials meeting in Tokyo over the weekend said they supported the International Monetary Fund's effort sell its gold reserves in order to invest in higher-yielding assets. The IMF is the third largest holder of gold in reserves after the U.S. Federal Reserve and the German central bank.
In the energy market today, crude oil fell for the first time in four days on forecasts that a government report tomorrow will show U.S. stockpiles increased for a fifth week. Crude oil for March delivery fell 81 cents (0.9%) to $92.78 a barrel.
In the currency markets today, the dollar index, which tracks the performance of the greenback against a basket of six major currencies, was at 76.236, down from 76.453
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.
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 lower by Rs 169 (1.4%) at Rs 11,596 per 10 grams. Prices rose to a high of Rs 11,783 per 10 grams and fell to a low of Rs 11,560 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 192 (0.9%) lower at Rs 22,040/Kg. Prices opened at Rs 22,220/kg and fell to a low of Rs 21,927/Kg during the day’s trading.