Gold back at $900

Precious metals rise as oil touches $128

Gold futures closed near $900 an ounce Friday, 16 May, 2008 marking their highest level in more than three weeks, as crude oil's rally to a fresh record high near $128 a barrel boosted the precious metal's appeal as an inflation hedge.

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. 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.

Comex Gold for June delivery rose $19.9 (2.3%) to close at $899.9 ounce on the New York Mercantile Exchange. Prices touched a high of $904.5 during intra day trading. For the week, gold prices ended higher by $14 (1.6%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Prices have dropped by 13% since then.

This year, gold prices have gained 7.3% for the till date against a 8.5% 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 28 cents (1.6%) to $16.96 an ounce. Silver has gained 13.1% 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.

At the currency markets on Friday, the dollar extended losses Friday, despite better-than-expected housing data, after a weak consumer sentiment index reading kept alive doubts about the strength of the U.S. economy. The dollar index, which tracks the performance of the greenback against other major currencies, fell 0.1% to 72.80.

Among major economic news, according to a report from the University of Michigan, the U.S. consumer sentiment index in May fell to 59.5 from 62.6 in April.

In the crude market, crude-oil futures rallied to a fresh record high near $128 a barrel as Goldman Sachs raised its second-half-of-the-year forecast for oil prices by 32% to $141.