Gold and silver prices continue to soar after weak economic report
Precious metals made a new record today, Thursday, 13 March, 2008 after gold crossed the $1000/ounce mark for the first ever time in history. Prices rose after the dollar continued to sink. Also a spate of weak news in the financial sector oil prices staying at higher levels propelled this rally. Higher oil prices boost the appeal of the precious metal as a hedge against inflation. Silver prices also rose substantially today.
Comex Gold for April delivery rose $13.3 (1.4%) to close at $993.8 ounce on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $1001.5/ounce but then the metal gave up some of its gains later in the session. This year, gold prices have gained 18.5% 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 42.5 cents (2.1%) to $20.42 an ounce. Silver has gained 32% 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 seventh day, climbing above $111 a barrel in New York, after the weak dollar prompted traders to invest in commodities. At the end, it closed a little over $110.
In the currency market today, the dollar also recovered from all-time lows against the euro and the Swiss franc. The dollar index, which tracks the performance of the greenback against a basket of major currencies, was down 0.02% at 72.07.
Among bleak economic news today, the Commerce Department reported that consumer spending weakened again in February as U.S. retail sales fell 0.6%.
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 145 (1.1%) at Rs 12,849 per 10 grams. Prices rose to a high of Rs 12,960 per 10 grams and fell to a low of Rs 12,718 per 10 grams during the day’s trading.
At the MCX, silver prices for May delivery closed Rs 440 (1.7%) higher at Rs 26,236/Kg. Prices opened at Rs 25,876/kg and went to a high of Rs 26,828/Kg during the day’s trading.