Bullion metals continue to drop

Gold and silver prices slip to six week low figures

Bullion metal prices registered substantial losses on Monday, 04 August, 2008 after the crude prices slipped by almost $4 and US dollar strengthened. Gold prices came tits lowest levels in almost six weeks. Silver prices also fell for the day.

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 $9.7 (1.05%) to close at $907.9 ounce on the New York Mercantile Exchange. It fell to an intra day low price of $903. Last week, it ended lower by 2.1%. 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 8.4% till date against a 8.2% drop for the dollar against the euro. Gold ended July, 2008 lower by $11 (1.1%). 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, 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 38 cents (2.2%) to $17.14 an ounce. Silver has gained 17% 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 has gained for seven straight years.

At the currency markets on Monday, the U.S. dollar edged higher against most other major currencies, but remained in recent narrow ranges as investors await this week's interest-rate decisions from the Federal Reserve, the Bank of England and the European Central Bank. Gold prices were also pressured by anticipation that the U.S. Federal Reserve might have to hike interest rates sooner due to the spike in inflation pressures. The dollar index, a measure of the greenback against a trade-weighted currency basket, was at 73.49, compared with last closing of 73.428.

Today, The Commerce Department reported that nominal spending grew 0.6% on the month, but the increase was all due to higher prices, which spiked 0.8%, the most since Hurricane Katrina hit in September 2005. Moreover, inflation's up 4.1% in the past year, the largest rate of growth in 17 years.

At the crude market on Monday, crude for September delivery tumbled $3.80 to $121.30 a barrel on the Nymex amid worries about the U.S. economy and demand for oil.

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 32% and 56% since the past one year.

During last week of June, Federal Reserve 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. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for August delivery closed lower by Rs 161 (1.3%) at Rs 12,348 per 10 grams. Prices rose to a high of Rs 12,570 per 10 grams and fell to a low of Rs 12,300 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 499 (2.03%) lower at Rs 23,980/Kg. Prices opened at Rs 24,550/kg and fell to a low of Rs 23,810/Kg during the day’s trading.