Precious metals end up for the quarter but down for the month

Gold and silver prices end lower on the last day of the month as dollar rebounds again

The last day of the month and the first quarter of FY 2008 was not a very bright day for the precious metals as both silver and gold prices dropped sharply on Monday, 31 March, 2008 as the dollar rebounded. Bullion metals ended lower as other commodities too declined across the board. A lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies and vice versa. Silver prices also fell for the day.

Comex Gold for June delivery fell $15 (1.6%) to close at $921.5 ounce on the New York Mercantile Exchange. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Last week, gold prices gained 1.1%.

This year, gold prices have gained 10.5% for the till date, ie for first quarter. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices have succumbed and fell by 5.5%.

Comex Silver futures for May delivery fell 63 cents (3.5%) to $17.31 an ounce. Silver has gained 16% in 2008 till date. 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%. For March, it ended lower by 13%. Last week, silver gained 6%.

In the currency market today, the dollar traded mostly higher against other major currencies, with the dollar index gaining 0.2% at 71.74. Among major economic data today, business activity in the Chicago region continued to contract in March, but the contraction was less severe than in February.

In the energy market today, crude oil fell more than $4 a barrel 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 $4.04 (3.8%) to settle at $101.58 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. A stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. 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 136 (1.1%) at Rs 11,891 per 10 grams. Prices rose to a high of Rs 12,174 per 10 grams and fell to a low of Rs 11,875 per 10 grams during the day’s trading.

At the MCX, silver prices for May delivery closed Rs 711 (3.1%) lower at Rs 22,274/Kg. Prices opened at Rs 22,989/kg and fell to a low of Rs 22,070/Kg during the day’s trading.