Strong dollar pressures bullion metals

Gold and silver prices fall for the day but register gains for the week

Pressured by the US dollar, bullion metals ended lower today, Thursday, 03 July, 2008. Prices fell though crude prices closed today at unchartered territory. Nevertheless, it registered marginal gains for the week. 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 $12.9 (1.8%) to close at $933.6 ounce on the New York Mercantile Exchange. For the holiday shortened week, it ended higher by $2.3 (0.3%). Last week, on Thursday, 26 June, prices surged by more than 3.5%. That was the biggest one day percentage gain for a most-active contract since June, 2006. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

Gold prices ended June, 2008 with a gain of 4.1%. The yellow metal ended second quarter with a marginal gain of 0.7% yesterday. 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 11.2% till date against a 8.6% 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 Thursday, Comex silver futures for September delivery fell 5.5 cents (0.3%) to $18.37 an ounce. Silver has gained 22.3% in 2008 till date and half of it in the past five sessions. It ended the week higher by 3.8%. 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 Thursday, there was a surge in the U.S. dollar following the jobs data. The dollar index which tracks the performance of the greenback against other major currencies, was last at 72.757 compared with 72.034. The Labor Department reported that the U.S. economy shed 62,000 jobs in June while the unemployment rate unexpectedly remained at a four-year high of 5.5%. Payrolls have now fallen in all six months this year for a total job loss of 438,000, the strongest evidence that the economy fell into a recession in the first half of the year.

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, after keeping interest rates unchanged at 4% since June, 2007, ECB hiked the same to 4.25% today. Gold gained 38% from 17 Sept as the Fed slashed rates from 5.25%.

In the crude market on Thursday, crude prices crossed the $146 mark during intra day trading but ultimately closed $1.7 higher at $154.29. Prices rose due to weak dollar and production concerns.

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 129 (0.98%) at Rs 13,054 per 10 grams. Prices rose to a high of Rs 13,267 per 10 grams and fell to a low of Rs 13,002 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 190 (0.75%) lower at Rs 25,181/Kg. Prices opened at Rs 25,550/kg and fell to a low of Rs 24,950/Kg during the day’s trading.

Regular futures trading on Nymex will be closed tomorrow, Friday for the Independence Day holiday.