Gold shines on rising crude oil and falling dollar

Gold prices witness the largest one day gain in almost four months

Rallying crude oil prices and the lower dollar sent yellow metal higher on Friday, 06 June, 2008. Previously during the week, strength in the dollar as well as recent weakness in oil had combined to dull investment demand for gold, which is often used as a hedge against inflation.

Comex Gold for August delivery rose $23.5 (2.7%) to close at $899 ounce on the New York Mercantile Exchange. It was gold’s highest one day gain in almost four months. For the 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 7.3% 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 Friday, Comex silver futures for July delivery rose 26 cents (1.5%) to $17.46 an ounce. Silver has gained 17% 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 Friday, the dollar index, which tracks the greenback against a basket of six major currencies, stood at 72.368 compared with 73.120 ahead of the employment data. Against the dollar, the euro jumped to $1.5772 from $1.5584 before the report.

On Friday, 06 June, the U.S. government reported the unemployment rate in May jumped to 5.5%, the highest since October 2004 and the biggest increase in seasonally adjusted unemployment in 33 years. The same pressured the dollar immensely.

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 on Friday, oil prices shot higher by almost $11 a barrel on Friday, scoring their biggest one-day gain in dollar terms as talk about a potential Israeli attack on Iran combined with a slide in the U.S. dollar to send prices to their highest levels on record. July crude climbed $10.75 (8.4%) to close at $138.54 a barrel on the New York Mercantile Exchange on Friday. That was an all-time closing high. It climbed as high as $138.80 during the regular trading session. The contract climbed 8.8% for the week on Nymex.