A mixed end for bullion metals

Gold prices end lower as oil retreats for first time in seven days

Precious metals ended mixed on Monday, 12 May, 2008. Gold prices fell but silver prices ended higher. Oil prices retreating for the first time in seven days and the dollar strengthening up partly against its rivals were the main reason behind gold’s low close.

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. Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Comex Gold for June delivery fell $0.90 (0.1%) to close at $884.9 ounce on the New York Mercantile Exchange. Earlier, it touched a high of $888.8. Last week, gold prices ended higher by $3.2 ($27.8). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce.

This year, gold prices have gained 6% 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 32 cents (1.8%) to $17.23 an ounce. Silver has gained 14.8% 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 on Monday, the dollar rose against some of its currency rivals in the aftermath of a weekend Wall Street Journal report that U.S. officials are attempting to put a floor under the greenback.

In the crude market, crude-oil futures fell, retreating after their record-breaking run in which they rallied more than 8% last week. Crude for June delivery closed down $1.73 at $124.23 a barrel in New York. Crude oil declined amid signs that rising prices may curb demand in emerging markets.

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 71 (0.6%) at Rs 11,961 per 10 grams. Prices rose to a high of Rs 12,010 per 10 grams and fell to a low of Rs 11,825 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 567 (2.5%) higher at Rs 23,467/Kg. Prices opened at Rs 23,000/kg and rose to a high of Rs 23,669/Kg during the day’s trading.