Bullion metals end higher

Gold and silver prices gain 1% and 3% respectively in July 2008

Bullion metal prices registered modest gains today, Thursday, 31 July, 2008 after a pack of economic data on the Wall Street disappointed and also after the dollar lost ground against some of its major currencies. Going into close, gold pared some of its gains but still ended considerably higher. But silver prices rose 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 rose $10.4 (1.1%) to close at $922.7 ounce on the New York Mercantile Exchange. It rose to a high of $933.7 during intra day trading. Last week, it ended lower by $30 (3.2%). With today’s close, gold ended July, 2008 lower by $11 (1.1%). 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 9.9% till date against a 8.4% drop for the dollar against the euro. The yellow metal ended second quarter with a marginal gain of 0.7%. Gold prices 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 Thursday, Comex silver futures for September delivery rose 32 cents (1.8%) to $17.79 an ounce. Silver has gained 20.5% 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 prices ended the month of May 2008 with a gain of 2.7%. For April, it closed lower by 5.5%. Silver had gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

At the currency markets on Thursday, the dollar got a lift later in the day from sagging crude oil futures and bounced back against major rivals, after slumping earlier as data painted a worrying picture of the U.S. economy. The dollar index which measures the greenback against a trade-weighted basket of currencies was at 73.259, up from a low of 72.856 and against 73.338 in the previous day.

According to the latest economic data, the U.S. economy expanded 1.9% in the second quarter, which is less than the expected 2.3% gain. Also, jobless claims also came in worse than expected. For the week ending 26 July, jobless claims climbed 44,000 to 448,000. That marked the third time in the last five weeks claims have surpassed 400,000. Continuing claims rose 6.0% to 3.282 million, while the four-week moving average jumped to 393,000 from 382,000.

At the crude market on Thursday, crude futures dropped more than $2 extending their monthly losses to a record high of nearly $16, as weaker-than-expected U.S. economic data spurred concerns that demand in the world's largest oil consumer could fall further. Oil for September delivery closed down $2.69, or 2.1%, at $124.08 a barrel on the New York Mercantile Exchange. Futures earlier fell to an intraday low of $122.71 a barrel. Crude lost $15.92 (11%) this month, the biggest ever in dollars.

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 34% and 60% since the past one year.

During last week of June, Federal Reserve yesterday 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. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for August delivery closed higher by Rs 141 (1.13%) at Rs 12,618 per 10 grams. Prices rose to a high of Rs 12,724 per 10 grams and fell to a low of Rs 12,470 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 238 (0.97%) higher at Rs 24,720/Kg. Prices opened at Rs 24,555/kg and rose to a high of Rs 24,985/Kg during the day’s trading.