Crude drops, bullion drop

Bullion metal prices dropped to its low levels in almost a month's time today, Tuesday, 29 July, 2008. Prices fell as the crude prices continue to tumble and the dollar index rose. Silver prices also fell for the day.

Comex Gold for August delivery fell $11.2 (1.2%) to close at $916.5 ounce on the New York Mercantile Exchange. It fell to a low of $913.8 during intra day trading. Yesterday, the yellow metal registered marginal gains of 90 cents. 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 9.6% till date against a 8.4% 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 fell 9 cents (0.46%) to $17.375 an ounce. Silver has gained 18.2% 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 Tuesday, the greenback gained against most other major rivals, with the dollar index up at 73.266 against previous day's 72.694. Stocks rallied at Wall Street today after crude prices dropped by almost $3 and also as consumer confidence rose. The Conference Board reported Tuesday that U.S. consumer confidence ticked up in July, while the level remained relatively low and job concerns persisted. The July consumer confidence index rose to 51.9 from a June reading that was revised to 51 from a prior estimate of 50.4.

At the crude market on Tuesday, crude oil fell to the lowest in 12 weeks as the U.S. dollar strengthened to a one-month high against the euro and on signs gasoline demand may extend declines. Crude oil for September delivery fell $2.54 (2%) to $122.19 a barrel on the New York Mercantile Exchange. It fell as low as $120.42 today.

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 158 (1.2%) at Rs 12,619 per 10 grams. Prices rose to a high of Rs 12,850 per 10 grams and fell to a low of Rs 12,599 per 10 grams during the day's trading.

At the MCX, silver prices for September delivery closed Rs 219 (0.9%) lower at Rs 24,308/Kg. Prices opened at Rs 24,550/kg and fell to a low of Rs 24,080/Kg during the day's trading.