Precious metals end lower

Gold and silver prices end marginally lower for the week

Precious metal prices fell for the second straight day on Friday, 7 March, 2008 after gold and silver prices touched all time new highs during the middle of the week. The fall in prices on Friday was mainly due to a weak economic data on the job front. Prices also fell even as crude oil price closed a bit lower at $105/barrel. Silver prices also fell marginally today.

Comex Gold for April delivery fell $2.9 (0.3%) to close at $974.2 an 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%. For the week, Last week, gold declined by 80 cents.

Comex Silver futures for May delivery fell by 2 cents (0.2%) to $20.25 an ounce. Silver has gained 31% 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%.

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.

Barring the last few days of the week, the bullion metal prices have been on a roll 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 to avoid the US economy in all ways from slipping into a recession. With this, the dollar had slumped sharply against its rival currencies.

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.

In the energy market on Friday, crude-oil futures fell by 32 cents at $105.15/barrel after hitting an intra day high of $106.54/barrel. The dropping dollar also surged up crude prices.

In the currency market on Friday, the dollar dropped to three-year lows against the yen as a sell-off on Wall Street sapped investor appetite for risk, but the greenback was relatively steady against other major counterparts.

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.