Bullion metals continue to drop

Gold and silver drop as traders think that last week’s rally was overdone

The relatively steady pushed down bullion metals on Monday, 25 August, 2008 and both gold and silver registered losses for the day. Prices were also pushed down after traders thought that last week’s rally in precious metals was overdone. Barring five sessions, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008. Silver prices also fell on Monday.

On Friday, Comex Gold for December delivery fell $7.8 (0.9%) to close at $825.7 an ounce on the New York Mercantile Exchange. It fell to an intra day low price of $820.5 earlier. Last week, the yellow metal ended higher by 5.2%, after five consecutive weeks of loss. With today’s loss, gold has lost 10% in August, 2008 till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (19.65%) since then.

This year, gold prices have lost 1.5% till date as the dollar rallied against the euro. But still, euro has managed to gain 1% against the dollar till date. It has lost almost $95 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 Monday, Comex silver futures for December delivery fell 11.1 cents (0.8%) to $13.479 an ounce. Last Thursday, 24 August, 2008, silver had registered largest one day gain in almost two years. With today’s loss, silver has lost almost 9.8% 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 20% and 34% 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 Monday, the greenback traded almost flat against the British pound. The dollar gained modestly against the euro. The dollar index, which tracks the value of the greenback against a basket of other major currencies, was at 76.80, almost unchanged from Friday.

Among economic news of the day at Wall Street, The National Association of Realtors reported today, Monday, 25 August, 2008 at USA that July existing home sales (U.S. single-family homes and condominiums) rose 3.1% month-over-month to a seasonally adjusted 5 million annual rate. Sales of single-family homes rose 3.1% to a 4.39 million annual pace. Condo sales rose 3.4% to 610,000 annualized. Total sales follow the 2.8% decline in June. Market expected July sales to increase 1.1% to 4.91 million.

At the crude market on Monday, crude-oil futures closed higher Monday after the formation of a new tropical storm in the Atlantic raised the possibility of supply disruptions in the Gulf of Mexico. Crude for October delivery rose 52 cents (0.5%) to settle at $115.11 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 lower by Rs 6 (0.05%) at Rs 11,722 per 10 grams. Prices rose to a high of Rs 11,770 per 10 grams and fell to a low of Rs 11,633 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 132 (0.65%) higher at Rs 20,185/Kg. Prices opened at Rs 19,954/kg and rose to a high of Rs 20,349/Kg during the day’s trading.