Precious metals remain almost unchanged

Gold and silver prices marginally lower today as equities rally

Bullion metals were almost unchanged today, Wednesday, 13 February, 2008 and closed marginally lower for the day. Prices fell as rally in equities reduced the glitterness of the metal as alternate source of investment. 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. Silver prices also ended marginally lower for the day.

Prices had increased for four straight days before yesterday 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.

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 $0.30 (0.03%) to close at $910.8 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.

Today’s drop was second consecutive day of drop for bullion metal prices. Yesterday gold prices had dropped by more than $15/ounce.

Comex Silver futures for March today fell by 1.5 cents (0.02%) to $17.245 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%.

U.S. stocks rose today after a government report showed an unexpected increase in retail sales in January, 2008. Retail sales in the U.S. gained 0.3% in January. Market was expecting a drop in sales.

Gold also fell today after the Group of Seven officials meeting in Tokyo over the last 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 currency markets today, the dollar index, which tracks the performance of the greenback against a basket of six major currencies, was at 76.570, up from 76.473 in late U.S. trading Tuesday.

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%.

At the MCX, gold prices for April delivery closed lower by Rs 11 (0.09%) at Rs 11,585 per 10 grams. Prices rose to a high of Rs 11,624 per 10 grams and fell to a low of Rs 11,475 per 10 grams during the day’s trading.

At the MCX, silver prices for March delivery closed Rs 62 (0.28%) higher at Rs 22,102/Kg. Prices opened at Rs 21,930/kg and rose to a high of Rs 22,150/Kg during the day’s trading.