Bullion metals end mixed

Gold prices end little lower while silver climbs up little higher with modest strength from dollar

Precious metals registered little drop on Wednesday, 04 June, 2008 as crude prices once again marked big drop and dollar showed modest strength. The dollar was strong for second straight day today after Federal Reserve Chairman Ben Bernanke yesterday signaled he's finished cutting U.S. borrowing costs for now thereby boosting the dollar and thus eroding the appeal of precious metals as alternative investments. A drop in energy costs also eroded demand for the precious metals as a hedge against inflation. But silver prices finished higher for the day.

Comex Gold for August delivery fell $1.7 (0.2%) to close at $883.8 ounce on the New York Mercantile Exchange. It fell to an intra day low of $879.2. Earlier, gold gained as the dollar dropped. Last week, gold prices ended lower by 4.2%. But for the month of 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 5.5% for the till date against a 6.5% 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 Monday, Comex silver futures for July delivery rose 10.5 cents (0.6%) to $16.94 an ounce. Silver has gained 14.2% in 2008 till date. It finished 7.5% lower last week.

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 Wednesday, the U.S. Dollar Index, a weighted measure against the euro, yen and four other major currencies, gained as much as 0.3%. Yesterday, the U.S. currency rallied after Federal Reserve Chairman Ben S. Bernanke signaled he was done cutting U.S. borrowing costs for now. That sent gold down 1.3%.

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.

In the energy market today, crude price fell more than 2% at $122.3/barrel after Energy Department reported that jump in refinery activities help supply of more petroleum products in the crude market.

The weakening dollar and higher global demand for raw materials have led to records this year for commodities including gold. 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.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. The ECB has kept rates unchanged at 4% since June, 2007.

Gold 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 39 (0.3%) at Rs 12,201 per 10 grams. Prices rose to a high of Rs 12,249 per 10 grams and fell to a low of Rs 12,078 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 164 (0.7%) higher at Rs 23,577/Kg. Prices opened at Rs 23,357/kg and rose to a high of Rs 23,630/Kg during the day’s trading.