Gold and silver prices end lower as dollar continues to rebound
Precious metals continued with their downward journey today, Tuesday, 01 April, 2008 as the rebounding dollar sparked off a strong sell-off in commodities. Bullion metals ended lower as other commodities too declined across the board. Gold fell below the $900/ounce mark for the first time in more than a month’s time.
A stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies. Silver prices also fell for the day.
Comex Gold for June delivery fell $33.7 (3.7%) to close at $887.8 ounce on the New York Mercantile Exchange. Price fell to a low of $876.3/ounce. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce.
This year, gold prices have gained 6.8% for the till date. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%. Last week, gold prices gained 1.1%.
Comex Silver futures for May delivery fell 42 cents (2.4%) to $16.89 an ounce. Silver has gained 13.6% in 2008 till date. Silver gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. Last week, silver gained 6%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
In the currency market today, the dollar extended gains gaining more than 2% against the yen as stocks soared after the Institute for Supply Management's manufacturing index unexpectedly inched higher. This calmed the recession fears to a little.
In the energy market today, crude oil fell again in New York on signs that a U.S. report will show inventories rose for the 11th time in 12 weeks as demand weakened. Crude oil for May delivery fell $0.60 (0.6%) to settle at $100.98 a barrel.
After weakening in the early part of the year, dollar tried to strengthen after Federal Reserve went through a slew of interest rate cuts. In the last of the series, Fed decided to cut overnight lending rate by 75 bps to 2.25% during third week of March, 2008. Since last September, Fed has axed interest rates six times. Hence, bullion metals along with other metals witnessed intense sell off together as traders parted away with commodities.
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.
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%. Gold has tripled in five years as investment demand has soared and mine supplies have remained low.
At the MCX, gold prices for June delivery closed lower by Rs 370 (3.1%) at Rs 11,521 per 10 grams. Prices rose to a high of Rs 11,930 per 10 grams and fell to a low of Rs 11,396 per 10 grams during the day’s trading.
At the MCX, silver prices for May delivery closed Rs 313 (1.4%) lower at Rs 21,961/Kg. Prices opened at Rs 22,222/kg and fell to a low of Rs 21,327/Kg during the day’s trading.