Bullion metals try to stay steady

Gold and silver prices drop on the last day of the week but manage marginal gains

Strength in the US dollar weighed on bullion metals on Friday, 18 July, 2008. Lower crude price also added to the impact further. Going economic concerns about the current health of the US economy had been increasing the metal’s demand as a safe asset against the rising inflation in recent times. Silver prices fell for the day.

Comex Gold for August delivery fell $12.7 (1.3%) to close at $958 ounce on the New York Mercantile Exchange. It fell to a low of $950 during intra day trading. For the week, it ended marginally lower by $2.6. 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 53 cents (2.8%) to $18.2 an ounce. Silver has gained 23.8% 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 Friday, the greenback was modestly higher buoyed by not-as-bad-as-expected results from Citigroup but it remained within recent ranges. The dollar index a measure of the U.S. unit against a trade-weighted basket of currencies, gained 0.2% to 72.18.

In the crude market on Friday, crude-oil futures ended the week trading down for a fourth straight session, with the benchmark contract suffering its biggest weekly loss of $16.20, on continued concerns that weaker economic growth will cut into oil demand. Prices closed at $128.88/barrel today, lower by 41 cents.

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 42% and 82% since the past one year.

As a safe-haven investment, gold tends to benefit when geopolitical tensions escalate as it did last week when Iran test fired missiles, including one that's capable of reaching its regional rival Israel.