Bullion metals end mixed

Gold manages to gain despite a drop in crude price

Despite crude prices going lower, gold prices ended higher for the day today, Thursday, 17 July, 2008. Going economic concerns about the current health of the US economy increased the metal’s demand as a safe asset against the rising inflation. A weakness in the US dollar helped the yellow metal in going up. But silver prices fell for the day.

Comex Gold for August delivery rose $8 (0.7%) to close at $970.7 ounce on the New York Mercantile Exchange. But prices fell during the after hours trading following the drop in crude prices. Last week, it ended higher by $27 (2.8%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

Today, Comex silver futures for September delivery fell 7 cents (0.4%) to $18.735 an ounce. Silver has gained 26.6% in 2008 till date. For the second quarter, it gained a paltry 1.4%.

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.

At the currency markets on Thursday, also weighing on gold prices was a rebound in the U.S. currency. The dollar extended gains against Japan's yen and the Swiss franc and reversed earlier losses against most other rivals as stocks rallied and crude oil futures continued to drop. The dollar index which measures the buck against a trade-weighted basket of currencies, rose 0.3% to 72.28.

In the crude market on Thursday, crude-oil futures fell for a third day closing below $130 a barrel for the first time in more than a month, as worries continued that slower economic growth will curb oil demand. Crude has lost nearly $16, or 11%, in the last three days. Prices closed at $129.29/barrel today, lower by more than $5.

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 47% and 87% since the past one year.

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 15.7% 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%.

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.

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%.

At the MCX, gold prices for August delivery closed lower by Rs 37 (0.3%) at Rs 13,328 per 10 grams. Prices rose to a high of Rs 13,510 per 10 grams and fell to a low of Rs 13,191 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 235 (0.9%) lower at Rs 25,982/Kg. Prices opened at Rs 26,300/kg and fell to a low of Rs 25,870/Kg during the day’s trading.