Gold and silver gain

Gold and silver prices gain as dollar drops and oil tops $110

Precious metals rose once again today, Wednesday, 12 March, 2008 after the dollar fell to new lows against its counterparts, mainly the euro and oil prices rallied crossing the $110 for the first time ever. Higher oil prices boosts the appeal of the precious metal as a hedge against inflation.

Comex Gold for April delivery rose $4.5(0.4%) to close at $970.5 ounce on the New York Mercantile Exchange. This year, gold prices have gained 17% till date. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. Last week, gold prices declined by 80 cents.

Comex Silver futures for May delivery rose 24 cents (0.9%) to $20 an ounce. Silver has gained 30% 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%.

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.

In the energy market today, crude oil rose to a record for a sixth day, climbing above $110 a barrel in New York, after the weak dollar prompted traders to invest in commodities.

In the currency market today pressure on the dollar resumed and sent it to a new low against the euro, after stronger-than-expected economic data in both the eurozone overshadowed any lingering influence of the Federal Reserve's liquidity-boosting steps. The dollar index, which measures the U.S. currency against a basket of major currencies, fell 1% to 72.41.

The dollar has been dampened since last year, more since start of FY 2008 after interest rates were cut twice in January, 2008. Gold, as a dollar-denominated commodity, suffers from dollar strength. On the contrary, gold prices rise with falling dollar as inflationary concerns boosts the metal's appeal as an inflation hedge.

The Fed has cut the federal funds rate to 3% this year from 5.25% in mid-September, 2007. January 2008 itself saw two rate cuts in a gap of ten days.

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%.

At the MCX, gold prices for April delivery closed higher by Rs 68 (0.5%) at Rs 12,704 per 10 grams. Prices rose to a high of Rs 12,740 per 10 grams and fell to a low of Rs 12,588 per 10 grams during the day’s trading.

At the MCX, silver prices for May delivery closed Rs 424 (1.7%) higher at Rs 25,796/Kg. Prices opened at Rs 25,450/kg and went to a high of Rs 26,047/Kg during the day’s trading