A bright day for bullion metals

Gold registers highest one day gain in two years

Bullion metals ended considerably higher today, Thursday, 26 June, 2008. Prices declined as the dollar weakened against its rivals. Prices soared as the energy costs also increased considerably today. The increase in energy costs increase demand for the precious metal as a hedge against inflation. Silver prices also rose the most in two weeks.

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 August delivery rose $32.8 (3.7%) to close at $915.1 ounce on the New York Mercantile Exchange. It was the biggest percentage gain for a most-active contract since June, 2006. Last week, gold prices ended higher by $30.6 (3.5%). Last month, in May, it ended with a gain of higher by $22.5 (2.5%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

This year, gold prices have gained 9.7% till date against a 7% drop for the dollar against the euro. Before May, 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%.

On Thursday, Comex silver futures for July delivery rose 61.3 cents (3.7%) to $17.22 an ounce. Last week, silver has gained 5%. Silver has gained 15.5% in 2008 till date.

Silver prices ended the month of May 2008 with a gain of 2.7%. For April, it closed lower by 5.5%. Silver had 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 Thursday, the dollar continued to decline, a day after the Federal Reserve left interest rates unchanged and voiced concerns about surging commodity prices, but failed to signal urgency to raise rates to curb inflation. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, was at 72.55, compared with 72.90.

The Federal Reserve yesterday sharpened its focus on inflation, saying that the upside risks to inflation have increased. Fed held its target for short-term interest rates steady at 2%.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. On the other hand, the ECB has kept rates unchanged at 4% since June, 2007. Gold gained 39% from 17 Sept as the Fed slashed rates from 5.25%.

In the crude market on Thursday, crude oil jumped above $140 a barrel to a record as Libya threatened to cut output, OPEC's president said prices may reach $170 by the summer and the dollar weakened. Crude oil for August delivery rose $5.09 (3.8%) to $139.64 a barrel.

Gold had 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. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for August delivery closed higher by Rs 377 (3.1%) at Rs 12,601 per 10 grams. Prices rose to a high of Rs 12,639 per 10 grams and fell to a low of Rs 12,238 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 743 (3.2%) higher at Rs 24,130/Kg. Prices opened at Rs 23,465/kg and rose to a high of Rs 24,374/Kg during the day’s trading.