Bullion metals buck normal trend

Gold and silver prices rise despite slipping crude and rising dollar

Bullion metals ended higher on Thursday, 28 August, 2008, despite crude prices slipping away and dollar strengthening. Traders anticipated that dollar’s rally will stall in the coming weeks and this led to bargain hunting. Barring eight sessions, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008. Silver prices also rose on Thursday.

On Thursday, Comex Gold for December delivery rose $3.2 (0.4%) to close at $837.2 an ounce on the New York Mercantile Exchange. It rose to an intra day high price of $849.3 and fell to an intra day low price of $830.5 earlier. Last week, the yellow metal ended higher by 5.2%, after five consecutive weeks of loss. With today’s gain, gold has lost 8.6% in August, 2008 till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (18.4%) since then.

This year, gold prices have lost 0.1% till date as the dollar rallied against the euro. But still, euro has managed to gain 0.6% against the dollar till date. Gold has lost almost $88 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 December delivery rose 13.7 cents (1%) to $13.705 an ounce. Last Thursday, 24 August, 2008, silver had registered largest one day gain in almost two years. With today’s gain, silver has lost almost 8.1% in 2008 till date. 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 32% from their all time highs that they reached earlier this year.

At the crude market on Thursday, crude oil fell more than $2 a barrel after the International Energy Agency said it would tap strategic stockpiles if Tropical Storm Gustav disrupts energy production in the Gulf of Mexico. Crude oil for October delivery fell $2.56 (2.2%) to settle at $115.59 a barrel.

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 dollar rebounded against the euro after a report showed the U.S. economy expanded in the second quarter faster than previously estimated and crude-oil prices fell. The dollar index, a measure of the greenback against a trade-weighted basket of currencies, was up 0.1%. The index fell previously in morning trading.

Among economic news of the day at Wall Street, the Commerce Department reported today that the U.S. economy grew at a 3.3% real annual pace in the second quarter, nearly double the initial 1.9% estimate offered last month.

Separately, the Labor Department said first-time applications for state unemployment benefits fell 10,000 in the latest weekly data to 425,000, while the four-week average of continuing claims climbed to a near five-year high of 3.37 million.

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 54 (0.45%) at Rs 11,830 per 10 grams. Prices rose to a high of Rs 11,945 per 10 grams and fell to a low of Rs 11,755 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 10 (0.04%) lower at Rs 20,070/Kg. Prices opened at Rs 20,299/kg and fell to a low of Rs 20,070/Kg during the day’s trading.