Sharp weekly drop for bullion metals

Gold prices end moderately higher but silver ends lower on the last day of the week

Precious metals ended moderately higher on Friday, 13 June, 2008. But its registered steep fall for the week that ended on that day. The dollar strengthening against its rivals was the main reason as to why bullion metals once again slipped on Friday. Crude prices too were trading lower during. Since the start of this week, the dollar had strengthened and also following on and off comments from Federal Reserve Chairman, Ben Bernanke, precious metals had lost ground. The same have reduced the appeal of the precious metals as an inflation hedge. Silver prices lost on Friday.

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 $1.1 (0.12%) to close at $873.1 ounce on the New York Mercantile Exchange. For the 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 4.5% till date against a 4.6% 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 rose 8cents (0.5%) to $16.56 an ounce. Silver has gained 10.6% in 2008 till date. It finished 87 cents (5%) lower as against 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 Friday, the dollar gained after data showed the U.S. consumer price index climbed 0.6% in May, the fastest pace in six months. The dollar index which tracks the currency against six trading partners, hit 74.14, up from 73.98 late Thursday.

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.

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 futures for July delivery were closed down $1.74 to stand at $135.00 a barrel on friday.

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%.