Bullion metals register marginal gains

Prices manage to eke out little gains but close off at day’s highs

Bullion metal prices kept on fluctuating today, Monday, 28 July, 2008, as traders kept close watch on the currency market and crude market. At the end, gold prices ended marginally higher. Silver prices also rose for the day.

Comex Gold for August delivery rose $0.9 (0.09%) to close at $927.7 ounce on the New York Mercantile Exchange. It recovered from a low of $922.40, but finished below the day's high of $932. 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 10.8% till date against a 9% 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 Monday, the dollar wavered between positive and negative territory against most major counterparts. The dollar index, which measures the dollar against a trade-weighted basket of currencies, was at 72.68, down from 72.811.

At the crude market on Monday, crude prices rose today at New York after Royal Dutch Shell reduced Nigerian production because of an attack on a pipeline by militants. Comments from Iranian president regarding global crude supplies also helped in lifting the prices higher. But the price gains were checked as investors continued to be worried about oil demand from US in the long run. Crude-oil futures for light sweet crude for September delivery closed at $124.73/barrel (higher by 1.47/barrel or 1.2%) on the New York Mercantile Exchange. The contract rose as high as $124.80 during the regular trading session, but traded as low as $122.70.

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%.