Precious metals register modest gains

Gold prices drop for the week but ends month with a higher note

After dropping for three straight days, precious metals ended higher on Friday, 30 May, 2008. During that day, the dollar traded slightly lower against most of its major rivals, erasing earlier modest gains but still on track to mark a positive month overall. For the month of May, overall strength in the U.S. dollar and recent declines in oil prices in last week helped to dull investment appeal for the precious metal, which is often used as a hedge against inflation.

Comex Gold for August delivery rose $9.8 (1.1%) to close at $891.5 ounce on the New York Mercantile Exchange. For the 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 6.5% 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 Friday, Comex silver futures for July delivery rose 35 cents (2.1%) to $16.87 an ounce. Silver has gained 13.2% in 2008 till date. It finished 7.5% lower 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.

The weakening dollar and higher global demand for raw materials have led to records this year for commodities including gold. Last week, crude oil's rally to a fresh record high above $133 a barrel had boosted the precious metal's appeal as an inflation hedge. Oil has doubled in the past year, fueling concern inflation will accelerate.

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.