Gold touches new highs

Gold touches a new high of $1009 during intra day trading

Precious metals created another new record on Friday, 14 March, 2008 after gold touched the $1009/ounce mark for the first ever time in history. 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 on Friday.

Comex Gold for April delivery rose $5.7 (0.5%) to close at $999.5 ounce on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $1009/ounce but then the metal gave up some of its gains later in the session. This year, gold prices have gained 19% till date. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%.

For the week, gold prices gained $25.3 (2.6%).

Comex Silver futures for May delivery rose 24 cents (1.2%) to $20.66 an ounce. Silver has gained 34% 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 on Friday, crude oil rose above $112 and touched $112.75 but ultimately ended lower for the day. Prices closed below $110/barrel on Friday.

In the currency market on Friday, 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.

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 59 (0.45%) at Rs 13,035 per 10 grams. Prices rose to a high of Rs 13,050 per 10 grams and fell to a low of Rs 12,995 per 10 grams during the day’s trading.

At the MCX, silver prices for May delivery closed Rs 174 (0.65%) higher at Rs 26,748/Kg. Prices opened at Rs 26,649/kg and went to a high of Rs 26,769/Kg during the day’s trading.


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