Bullion ends a little lower

Gold prices end marginally lower while silver ends marginally higher

Dollar rebounded today and thus precious metals ended almost unchanged today, Thursday, 27 March, 2008. Benign economic news helped dollar rebound today after the same fell to new lows against the euro since past couple of days. A lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies. Silver prices rose for the day. Last week, gold and silver prices had dropped by 8% and 18% respectively.

After dropping more than 8% last week, Comex Gold for June delivery fell $0.20 (0.2%) to close at $954 ounce on the New York Mercantile Exchange. Earlier last week on Monday, 17 March, prices skyrocketed to a high of $1,034/ounce. Since past couple of sessions, prices had gained almost 4%.

This year, gold prices have gained 12.3% till date. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices have succumbed. Last week, gold prices shed 8.3%.

Comex Silver futures for May delivery rose 16.7 cents (0.9%) to $18.55 an ounce. Silver has gained 25% 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%. In February, it gained another 15%.

In the currency market today, the dollar rose as much as 0.8% against the euro.

In the energy market today, crude oil rose above $107 a barrel in New York after a pipeline explosion in southern Iraq cut supplies to the country's main export terminal.

Barring these three days, gold and silver prices had dropped in the three days prior to that. Prices were pressured as dollar strengthened. Dollar continued to rally after Federal Reserve decided to cut overnight lending rate by 75 bps to 2.25% earlier last week. A stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. Hence, bullion metals along with other metals witnessed intense sell off together as traders parted away with commodities.

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. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

The Fed action took the federal funds rate target down to 2.25%, the lowest since December 2004. Since last September, Fed has axed interest rates six times.

Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) 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. In 2006, silver had jumped 46% while gold gained 23%. Gold has tripled in five years as investment demand has soared and mine supplies have remained low.

At the MCX, gold prices for April delivery closed lower by Rs 1(0.008%) at Rs 12,334 per 10 grams. Prices rose to a high of Rs 12,385 per 10 grams and fell to a low of Rs 12,116 per 10 grams during the day’s trading.

At the MCX, silver prices for May delivery closed Rs 123 (0.51%) higher at Rs 23,948/Kg. Prices opened at Rs 23,911/kg and rose to a high of Rs 24,000/Kg during the day’s trading.