Bullion metals end mixed

Gold prices end considerably lower even though prices pare losses in last hours

Bullion metal prices once again dropped to its low levels in almost a month’s time today, Wednesday, 30 July, 2008. Prices fell as the dollar strengthened. Going into close, it pared some of its losses but still ended considerably lower. But silver prices rose for the day.

Comex Gold for August delivery fell $13.6 (1.5%) to close at $902.9 ounce on the New York Mercantile Exchange. It fell to a low of $895.4 during intra day trading. Last 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 8.1% 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 Monday, Comex silver futures for September delivery rose 9 cents (0.46%) to $17.465 an ounce. Silver has gained 18.7% 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.

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 Wednesday, the dollar rose earlier in the day in foreign-exchange trading after data based on a sampling of ADP payrolls indicated that July's private-sector employment rose by 9,000. Including some 20,000 government workers typically hired in a given month, the ADP index suggests U.S. nonfarm payrolls rose by about 30,000. But the dollar index which tracks the performance of the greenback against a basket of other currencies, pulled back a bit as oil prices gained more ground. The index was settled at 73.29, compared with 73.285 in the previous day.

At the crude market on Wednesday, crude-oil futures closed with a more than $4 per barrel gain finding support from the first drop in U.S. gasoline supplies in five weeks and a second-weekly decline in crude inventories. Production concerns tied to conflicts in Nigeria and rising tension in Iran also lent support. Crude for September delivery gained $4.58 to close at $126.77 a barrel on the New York Mercantile Exchange.

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 34% and 60% 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% in June, 2008.

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 142 (1.12%) at Rs 12,477 per 10 grams. Prices rose to a high of Rs 12,630 per 10 grams and fell to a low of Rs 12,284 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 174 (0.71%) higher at Rs 24,482/Kg. Prices opened at Rs 24,305/kg and rose to a high of Rs 24,560/Kg during the day’s trading.