Bullion metals continue to rise

Gold and silver prices rise once again as dollar continues to weaken

Bullion metals ended considerably higher on Friday, 27 June, 2008. Prices declined as the dollar weakened against its rivals. Prices also soared as the energy costs also increased considerably. The increase in energy costs increase demand for the precious metal as a hedge against inflation. Silver prices also rose.

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 $16.2 (1.9%) to close at $931.3 ounce on the New York Mercantile Exchange. One day back, prices surged by more than 3.5%. That was the biggest percentage gain for a most-active contract since June, 2006. For the week gold prices ended higher by $27.6 (3.1%). 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 11.5 till date against a 7.8% 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 Friday, Comex silver futures for July delivery rose 49 cents (2.8%) to $17.71 an ounce. Silver has gained 18.3% 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 Friday, the dollar was flat to modestly lower against major currencies with increasingly risk-averse traders unwilling to buy the greenback as oil futures marched to new highs and equities lost ground. The dollar index which tracks the performance of the U.S. currency against other major counterparts, was at 72.294 compared with 72.48 a day prior.

Earlier in the week, 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 Friday, crude-oil futures for light sweet crude for August delivery today closed at $140.21/barrel (higher by $0.57/barrel or 0.4%) on the New York Mercantile Exchange. This was another all time new closing price for crude. During intra day trading prices touched a high of $143. For the week, crude prices closed higher by 3.6%.

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%.