Precious metals gain back

Gold and silver prices end higher as dollar loses steam

After sharply declining in the previous two sessions, precious metals rose today as dollar lost some energy against its rivals. The dollar lost steam against its counterpart after the Federal Reserve Chairman, Ben Bernanke told today that the economy in the US might contract in the first half of the current year. Bullion metals ended higher as other commodities like oil too rose across the board. Gold rose above the $900/ounce mark once again.

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 rose for the day.

Comex Gold for June delivery rose $12.4 (1.4%) to close at $900.2 ounce on the New York Mercantile Exchange. Price rose to a high of $903/ounce earlier in the day. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce.

This year, gold prices have gained 8.2% 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 rose 29 cents (1.7%) to $17.18 an ounce. Silver has gained 15.3% 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 index, which tracks the performance of the U.S. currency against other major currencies, was last down 0.25%. The dollar had firmed earlier after the ADP employment report showed that private sector jobs rose by 8,000 in March. But then it fell in the course of the day. In testimony to Congress, Bernanke said that the outlook for U.S. economic growth has worsened since January and that the possibility of a recession can't be ruled out.

In the energy market today, crude oil rose more than $3 a barrel and gasoline surged to a record after an Energy Department report showed that U.S. supplies of the motor fuel fell a third week. Crude oil for May delivery rose $3.85 (3.8%) to settle at $104.83 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 higher by Rs 78 (0.7%) at Rs 11,560 per 10 grams. Prices rose to a high of Rs 11,620 per 10 grams and fell to a low of Rs 11,432 per 10 grams during the day’s trading.

At the MCX, silver prices for May delivery closed Rs 383 (1.7%) higher at Rs 22,344/Kg. Prices opened at Rs 22,025/kg and rose to a high Rs 22,388/Kg during the day’s trading.