Bullion metals rise again

A weak dollar pushes up the precious metals

Precious metals ended higher today, Thursday, 08 May, 2008. The weak dollar was the main reason for this. Higher crude prices also added to the reason behind the rise. Prices rose as crude touched a fresh new high at $124.5/barrel. Silver prices also rose for the day. Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies.

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.

Comex Gold for June delivery rose $10.9 (1.2%) to close at $882.1 ounce on the New York Mercantile Exchange. Yesterday, prices had dropped by more than $6. Last week, gold prices lost $32 (3.6%) against previous week’s close. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce.

This year, gold prices have gained 5.5% for the till date against a 9.2% drop for the dollar against the euro. For April, prices closed lower by 6.3%. 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%.

Comex Silver futures for July delivery rose 17 cents (0.8%) to $16.87 an ounce. Silver has gained 13% in 2008 till date. For April, it closed lower by 5.5%. 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%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

On the currency markets today, the dollar was modestly lower losing ground to the euro and the pound after both the European Central Bank and the Bank of England both decided to hold policy steady. ECB President Jean-Claude Trichet cited inflation risks in his statement, further bolstering the common currency. The dollar index, which measures the greenback against a basket of six major currencies, fell 0.2% to 73.37.

In the energy market today, crude-oil futures touched a fresh record above $124.5 after traders continued to remain concerned regarding global oil supplies. Earlier in the day, crude prices fell, but it soon recovered and ended higher for the day.

Generally, 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.

At the MCX, gold prices for June delivery closed higher by Rs 204 (1.7%) at Rs 11,832 per 10 grams. Prices rose to a high of Rs 11,888 per 10 grams and fell to a low of Rs 11,621 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 318 (1.4%) higher at Rs 22,860/Kg. Prices opened at Rs 22,453/kg and rose to a high of Rs 23,067/Kg during the day’s trading.