Bullion metals give up earlier gains

Gold prices end marginally lower tracking the course of crude prices

With dropping crude price, bullion metal prices too tracked the course accordingly and ended marginally lower for the day, Monday, 9 June, 2008. In fact it was trading higher earlier in the day but at the end, it gave up its gains going into close. Strong dollar led to yellow metal paring gains. Weakness in oil also leads to dull investment demand for gold, which is often used as a hedge against inflation. Gold climbed earlier on concern tensions between Iran and Israel will escalate, enhancing the appeal of the metal as an investment haven.

Comex Gold for August delivery rose $0.90 (0.1%) to close at $898.1 ounce on the New York Mercantile Exchange. Earlier in the day, it rose to $912.5 and fell to a low of $883.7. It was gold’s highest one day gain in almost four months. Last week, gold prices ended higher by 0.8%. 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 7.2% till date this year 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 Friday, Comex silver futures for July delivery fell 22 cents (1.3%) to $17.21 an ounce. Silver has gained 15.7% in 2008 till date. It finished 3.5% higher for the 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 Monday, the dollar rose against the euro for the first time in three sessions as U.S. policy makers indicated they are concerned about the currency's 7% drop this year.

In the energy market today, crude oil fell more than $4 a barrel in New York after Saudi Arabia's oil minister, Ali al-Naimi, called for a meeting of oil producing and consuming nations to discuss how to deal with record prices. The price of crude, which also helped fuel gold's rise last week, declined $4.19 to $134.35 a barrel on the Nymex.

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.

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 lower by Rs 116 (0.92%) at Rs 12,430 per 10 grams. Prices rose to a high of Rs 12,628 per 10 grams and fell to a low of Rs 12,386 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 506 (2.04%) lower at Rs 24,177/Kg. Prices opened at Rs 24,730/kg and fell to a low of Rs 24,104/Kg during the day’s trading.