Bullion metals at ten week high

Gold and silver prices rise sharply with the strong crude and weak dollar

Bullion metals ended at the highest level in ten week’s time today, Tuesday, 01 July, 2008. Prices rose due to the declining dollar and the rising crude prices. The increase in energy costs generally increase demand for the precious metal as a hedge against inflation. Silver prices also rose.

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 $16.2 (1.7%) to close at $944.5 ounce on the New York Mercantile Exchange. It was the highest closing price for the yellow metal since mid April. Last week, on Thursday, 26 June, prices surged by more than 3.5%. That was the biggest one day percentage gain for a most-active contract since June, 2006. Last week gold prices ended higher by $27.6 (3.1%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

Gold prices ended June, 2008 with a gain of 4.1%. The yellow metal ended second quarter with a marginal gain of 0.7% yesterday. Last month, in May, it ended with a gain of higher by $22.5 (2.5%). Before May, for April, prices closed lower by 6.3%.

This year, gold prices have gained 12.5% till date against a 8.5% drop for the dollar against the euro. 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 Tuesday, Comex silver futures for July delivery rose 78 cents (4.5%) to $18.29 an ounce. Silver has gained 21.9% in 2008 till date. For the second quarter, it gained a paltry 1.4%.

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 Tuesday, the dollar gave up earlier gains as currency traders turned their attention back to Thursday's job data release and a key European Central Bank meeting, losing their initial enthusiasm over better-than-expected factory data. The dollar index which measures the greenback against a basket of six major currencies, dipped to 72.374 from 72.529.

Last week, Federal Reserve yesterday sharpened its focus on inflation, saying that the upside risks to inflation have increased. Fed held its target for short-term interest rates steady at 2%.

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. Gold gained 38% from 17 Sept as the Fed slashed rates from 5.25%. All eyes will be on the ECB on Thursday, 3 July, 2008 looking to see what the board will do with interest rates

In the crude market on Tuesday, oil rose, extending this year's 48% gain, as the International Energy Agency said supplies may not keep up with demand through 2013 and on reports that Israel is increasingly likely to attack Iran this year. Crude oil for August delivery rose 97 cents (0.7%) to settle at $140.97 a barrel.

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 328 (2.5%) at Rs 13,207 per 10 grams. Prices rose to a high of Rs 13,236 per 10 grams and fell to a low of Rs 12,835 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 1,015 (4.2%) higher at Rs 25,275/Kg. Prices opened at Rs 24,290/kg and rose to a high of Rs 25,640/Kg during the day’s trading.