Bullion metals end lower for week

Prices end mixed on the last day of the week

Crude prices slipping further and the relatively strong US dollar led bullion metals close little higher, 25 July, 2008. But bullion metals registered modest losses for the week that ended on that day. Lower crude price and rebound in US dollar reduce precious metals’ appeal against a hedge against inflation. Before that, going economic concerns about the current health of the US economy had been increasing the metal’s demand as a safe asset against the rising inflation in recent times. But silver prices rose 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 $4.5 (0.5%) to close at $926.7 ounce on the New York Mercantile Exchange. For the week, it ended lower by $30 (3.2%). 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 9.8% till date against a 8% drop for the dollar against the euro. 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%.

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 September delivery rose 8 cents (0.46%) to $17.38 an ounce. Silver has gained 17.7% in 2008 till date. For the second quarter, it had 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 Friday, the dollar got a lift from better-than-expected U.S. durable-goods data and lower crude-oil-futures prices. A Commerce Department report showed new orders for U.S.-made capital goods rose 0.8% in June, pushed higher by orders for primary metals, machinery and electrical equipment. The dollar index a measure of the greenback against a trade-weighted basket of currencies, was at 72.86, up from 72.860.

In the crude market on Friday, crude oil for September delivery lost $2.23, or 1.8%, to $123.26 a barrel on the New York Mercantile Exchange. Investors continued to be worried that an economic slowdown will dampen oil demand.

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 and oil has climbed 36% and 66% since the past one year.

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 month.

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%.