Bullion metals continue to shine

Gold and silver prices continue to rise as dollar slumps against the euro

Bullion metals once again ended higher today, Wednesday, 02 July, 2008. Prices rose due to the declining dollar and the rising crude prices. The dollar fell to a two month low against the euro today. Gold erased earlier losses after a government report showed U.S. crude-oil inventories unexpectedly fell last week. 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 $2 (0.2%) to close at $946.5 ounce on the New York Mercantile Exchange. 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 13% till date against a 9% 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 Wednesday, Comex silver futures for September delivery rose 13.5 cents (0.7%) to $18.425 an ounce. Silver has gained 22.6% in 2008 till date and half of it in the past five sessions. 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 Wednesday, the dollar slipped after a survey based on a sampling of ADP payrolls data showed private-sector firms in the U.S. shed a projected 79,000 jobs in June, in what would be the biggest monthly loss since November 2002. The dollar index which measures the greenback against a basket of six major currencies, was last at 72.052 compared with 72.374.

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. The European Central Bank is widely expected to raise its key lending rate by a quarter of a percentage point, to 4.25%.

In the crude market on Wednesday, crude oil futures rose to a record above $144 a barrel in New York after a U.S. government report showed an unexpected decline in inventories. Crude oil for August delivery rose $2.60 (1.8%) to settle at $143.57 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 lower by Rs 24 (0.2%) at Rs 13,183 per 10 grams. Prices rose to a high of Rs 13,227 per 10 grams and fell to a low of Rs 13,000 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 96 (0.4%) higher at Rs 25,371/Kg. Prices opened at Rs 25,101/kg and rose to a high of Rs 25,450/Kg during the day’s trading.