Precious metals try to make up for the losses

Gold and silver prices end considerably higher as dollar weakens for first time in four sessions

Precious metals ended considerably higher on Monday, 16 June, 2008. The weakness in dollar was the main reason behind this. Also, crude prices retreated after reaching an all time high of $140/barrel. Dollar fell today against the euro after three successive sessions of rise.

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 $13.2 (1.5%) to close at $886.3 ounce on the New York Mercantile Exchange. Earlier, in the day, gold futures touched a high of $897. Last week, gold prices ended lower by $25.9 (2.9%). 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 6% till date against a 4.8% 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 Monday, Comex silver futures for July delivery rose 67 cents (4%) to $17.23 an ounce. Silver has gained 14.6% in 2008 till date. Last week, it finished 87 cents (5%) lower.

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 U.S. dollar fell against most of its major rivals after a meeting of the Group of Eight finance ministers in Japan focused more on inflation than on currencies, deflating expectations of a strong statement of support for the U.S. currency.

Also weighing on the greenback was a report showing that manufacturing in the New York region contracted in June. The Empire State survey index fell to negative 8.7 this month from negative 3.2 in May, indicating the industry is contracting. The dollar index , which tracks the performance of the greenback against a basket of other major currencies, was off 0.6% at 73.62.

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.

In the crude market, crude oil fell from a record on signs that Saudi Arabia will increase production to stabilize prices. Crude oil for July delivery fell 25 cents to settle at $134.61 a barrel after reaching an intra day high of $139.89.

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%.

At the MCX, gold prices for August delivery closed higher by Rs 169 (1.4%) at Rs 12,284 per 10 grams. Prices rose to a high of Rs 12,436 per 10 grams and fell to a low of Rs 12,055 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 772 (3.3%) higher at Rs 24,211/Kg. Prices opened at Rs 23,445/kg and rose to a high of Rs 24,630/Kg during the day’s trading.