A bright day for bullion metals

Gold and silver gain the most in two months and two years respectively

The weak dollar and substantial sudden rise in crude prices paved the way for bullion metals today, Thursday, 21 August, 2008 and both gold and silver registered good gains after a long time. Barring four sessions, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008. Silver prices also rose today.

Today, Comex Gold for December delivery rose $22.7 (2.8%) to close at $839 ounce on the New York Mercantile Exchange. It rose to an intra day high price of $844 earlier. Last week, the yellow metal gave up 8.4%. With today’s gain, gold has lost 8.55% in August, 2008 till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (18%) since then.

This year, gold prices have gained a marginal 0.2% till date as the dollar rallied against the euro. It has lost almost $82 in August till now. Gold ended July, 2008 lower by $11 (1.1%).

Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. It ended June, 2008 with a gain of 4.1%. In May, it ended with a gain of higher by $22.5 (2.5%). Before May, in 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 Thursday, Comex silver futures for September delivery rose 69 cents (5.2%) to $13.843 an ounce. This was the largest one day gain for a current silver contract in almost two years. With today’s rise silver has lost almost 7.2% in 2008 till date. Last week, it gave up 16.4%. It ended July 2008 with a gain of 3%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. The metal also had gained for seven straight years.

Gold and silver prices have dropped 18% and 31% from their all time highs that they reached earlier this year.

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. 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 and vice versa.

At the currency markets on Thursday, the U.S. dollar extended its losses against most major currencies, losing more ground after downbeat U.S. economic data exacerbated a sell-off linked to rebounding oil prices. The dollar index, which measures the greenback against a trade-weighted basket of currencies, was at 76.06, down from 76.926 in previous session.

Among economic news hitting the wires at US today, initial jobless claims for the week ending 16 August totaled 432,000, which was below the 440,000 expected. Claims fell 13,000 relative to the prior week's downwardly revised total. Still, the 4-week moving average for jobless claims advanced to 445,750 from 438,500.

Also, the Conference Board in USA reported today that the leading economic indicators for July dipped 0.7%. The leading index is designed to forecast turning points in the economy. Market was looking for a 0.2% decline. The report pointed to slow growth the rest of the year and possibly an economy grinding to a halt.

At the crude market on Thursday, crude oil rose as much as 6.1% on speculation rising tensions between the U.S. and Russia may disrupt supply. Prices also rose due to the strong dollar. Crude oil for October delivery rose $5.62 (4.9%) to settle at $121.18 a barrel.

Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. The Federal Reserve halted cuts to its target bank lending rate in April, after slicing it in seven steps to 2% from 5.25% in September.

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. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for October delivery closed higher by Rs 254 (2.2%) at Rs 11,823 per 10 grams. Prices rose to a high of Rs 11,865 per 10 grams and fell to a low of Rs 11,600 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 769 (3.9%) higher at Rs 20,441/Kg. Prices opened at Rs 19,820/kg and rose to a high of Rs 20,549/Kg during the day’s trading.