Bullion metals end higher

Reports of missile tests by Iran help gold and silver prices end up

The weak US dollar and the rising oil price once again sent some relief to the bullion metals today, Thursday, 10 July, 2008. Prices also rose on reports of more missile tests by Iran. Gold is typically seen as a safe-haven investment and its appeal increases during times of heightened geopolitical tensions. The increase in energy costs also generally increase demand for the precious metal as a hedge against inflation. Silver prices gained for the day.

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 $13.4 (0.9%) to close at $942 ounce on the New York Mercantile Exchange. Prices climbed to a high of $945.5 during intra day trading. Last week, it ended higher by $2.3 (0.3%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

It was reported today that Iran test fired more missiles on Thursday, after testing missiles the day before that could reach Israel. Iran is the world's fourth-largest exporter of crude oil.

The weakening dollar and higher global demand for raw materials have led to records this year for commodities including gold. 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.

Gold prices ended June, 2008 with a gain of 4.1%. The yellow metal ended second quarter with a marginal gain of 0.7%. 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 11.5% till date against a 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%.

Today, Comex silver futures for September delivery gained 14 cents (0.8%) to $18.32 an ounce. Silver has gained 22.3% in 2008 till date. It ended last week higher by 3.8%. 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 Thursday, the dollar lost previous gains as shares on Wall Street came under more pressure from concerns over the financial sector, with investors concerned over the fate of government-sponsored mortgage buyers Fannie Mae and Freddie Mac. The dollar index which measures the greenback against a trade-weighted basked of currencies, fetched 72.51, compared with 72.76 in early Thursday trade.

During last week of June, 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, after keeping interest rates unchanged at 4% since June, 2007, ECB hiked the same to 4.25% last week.

In the crude market on Thursday, crude for August delivery closed up $5.6, or 4.1%, at $141.65 a barrel on the New York Mercantile Exchange. Crude was mostly trading up less than $2 during the session, but jumped as much as $6 a few minutes before the market closed.

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 135 (1.04%) at Rs 13,076 per 10 grams. Prices rose to a high of Rs 13,137 per 10 grams and fell to a low of Rs 12,911 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 125 (0.5%) higher at Rs 25,624/Kg. Prices opened at Rs 25,564/kg and rose to a high of Rs 25,775/Kg during the day’s trading.