Bullion metals end mixed

Gold prices slip but silver gains as dollar remains strong

Pressured by the US dollar, bullion metals fell today, Tuesday, 08 July, 2008. Crude prices drastically falling today for the second straight day also led to lower bullion metal prices. The increase in energy costs generally increase demand for the precious metal as a hedge against inflation. But 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 fell $5.5 (0.65%) to close at $923.3 ounce on the New York Mercantile Exchange. Earlier during the day, it dropped to as much low as $914. 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.

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% yesterday. 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 10% 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 3 cents (0.03%) to $17.95 an ounce. Silver has gained 20% 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 Tuesday, putting pressure on commodities were gains in the U.S. dollar. The greenback was boosted by comments made by Federal Reserve Chairman Ben Bernanke, who said the Fed may extend its lending facilities into next year. The dollar index which measures the U.S. unit against a basket of major currencies, stood at 72.99, compared with 72.67 ahead of Bernanke's speech.

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 Tuesday, crude-oil futures tumbled more than $5 a barrel, suffering the biggest one-day loss in almost four months and contributing to a two-day decline of more than $9 a barrel, as the rising dollar and economic worries spurred another broad sell-off in commodities. Crude oil for August delivery closed at $136.04 a barrel on the New York Mercantile Exchange, down 3.8%, or $5.33. Earlier it slumped $6.23 to an intraday low of $135.14 a barrel. Crude has dropped $9.25 over two straight sessions.

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 113 (0.9%) at Rs 12,873 per 10 grams. Prices rose to a high of Rs 13,062 per 10 grams and fell to a low of Rs 12,772 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 107 (0.4%) lower at Rs 25,149/Kg. Prices opened at Rs 25,257/kg and fell to a low of Rs 24,730/Kg during the day’s trading.