Bullion metals down by 3% in FY 2008

Gold loses almost 12% in August till date

Strong US dollar and sliding crude prices continued to send bullion metal prices to their lowest levels in a year today, Tuesday, 12 August, 2008. Gold and silver prices have registered losses in all the trading sessions in the current month of August, 2008. Bullion metals had also incurred sufficient losses last week. 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. 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.

Comex Gold for December delivery fell $13.7 (1.7%) to close at $814.6 ounce on the New York Mercantile Exchange. With today’s drop, it lost 11.7% in August, 2008 till date. Last week, it ended lower by 5.8%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped 22% since then.

This year, gold prices have lost 2.9% till date as the dollar rallied against the euro. It has lost almost $108 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 Tuesday, Comex silver futures for September delivery fell 13.5 cents (0.9%) to $14.485 an ounce. With today’s drop silver erased all of its gains and has lost almost 2.9% in 2008 till date. Last week it lost 12.5%. 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.

At the currency markets on Tuesday, the dollar was little changed against the euro after rallying 4.4% this month before today. Traders pared speculation on a rate hike by the European Central Bank later this year, after policy makers held the benchmark rate at 4.25% on 7 Aug, 2008. The dollar index which measures the greenback against a basket of currencies, fell to 76.14 from 76.21 in the previous day.

At the crude market on Tuesday, crude oil fell to a 14-week low on speculation that the dollar will strengthen against the euro, weakening the appeal of commodities as an inflation hedge. Crude oil for September delivery fell $1.44 (1.3%) to settle at $113.01 a barrel. It dropped to an intra day low of $112.5.

Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. 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 41 (0.35%) at Rs 11,354 per 10 grams. Prices rose to a high of Rs 11,488 per 10 grams and fell to a low of Rs 11,186 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 17 (0.08%) higher at Rs 20,833/Kg. Prices opened at Rs 20,720/kg and rose to a high of Rs 21,175/Kg during the day’s trading.