Bullion metals register marginal drop

Gold and silver prices end second quarter with roughly 1% gains

Bullion metals ended lower on Monday, 30 June, 2008. Prices declined as the dollar strengthened against its rivals. Prices also gave up some gains after crude prices fell from their record highs. The increase in energy costs generally increase demand for the precious metal as a hedge against inflation. Silver prices also fell.

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 $3 (0.32%) to close at $928.3 ounce on the New York Mercantile Exchange. Earlier, gold rose as much as 0.7% as record oil prices boosted demand for the precious metal as a hedge against inflation. Last week, on Thursday, 26 June, prices surged by more than 3.5%. That was the biggest percentage gain for a most-active contract since June, 2006. Last week gold prices ended higher by $27.6 (3.1%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

With today’s closing, gold prices ended June, 2008 with a gain of 4.1%. The yellow metal ended second quarter with a marginal gain of 0.7%. Last month, 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 10.8% till date against a 8% 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%.

On Monday, Comex silver futures for July delivery fell 20 cents (1.1%) to $17.51 an ounce. Silver has gained 17.4% in 2008 till date. 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 Monday, the euro fell for the first time in five sessions and is headed for the first quarterly decline since September 2006. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, was last at 72.43, up from 72.306.

Last week, 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, the ECB has kept rates unchanged at 4% since June, 2007. Gold gained 38% from 17 Sept as the Fed slashed rates from 5.25%.

In the crude market on Monday, crude oil was little changed after rising to a record above $143 a barrel on concern Israel may attack Iran over its nuclear program and disrupt supply from OPEC's second-largest producer. Crude oil for August delivery fell 21 cents to settle at $140 a barrel on the New York Mercantile Exchange after rising to a record $143.67.

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 47 (0.4%) at Rs 12,879 per 10 grams. Prices rose to a high of Rs 12,996 per 10 grams and fell to a low of Rs 12,761 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 314 (1.3%) lower at Rs 24,260/Kg. Prices opened at Rs 24,570/kg and fell to a low of Rs 24,140/Kg during the day’s trading.