Gold gains 6% in Feb

Gold and silver prices continue to take giant jumps on interest rate outlook

Bullion metal prices rose sharply higher for the fourth straight day on Friday, 29 February, 2008 after the dollar slumped sharply against its rival currencies, mainly the euro. The dollar have been dampened since last week after the Federal Reserve Chairman, Ben Bernanke hinted that Fed in all possibility will go for another soft landing in its next meeting thereby reducing interest rates by another 50 bps.

This has been weakening dollar further. 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. Silver prices also gained substantially today, reaching the highest level in twenty eight years.

Comex Gold for April delivery rose $7.5 (0.9%) to close at $975 an ounce on the New York Mercantile Exchange. Prices touched a record $978/ounce during after hours trading. 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%.

For the week, gold gained $27 (2.8%). Prices increased due to the slumping dollar and overall rise in other commodity prices.

Comex Silver futures for May delivery rose by 18 cents (0.8%) to $19.81 an ounce. Silver has gained 28% 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%.

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

In the currency market on Friday, the dollar extended its decline against most of its major counterparts. The dollar index, which tracks the performance of the greenback against a basket of six major currencies, fell 0.8% to 73.70. The dollar earlier dropped to a three-year low against the yen.