Bullion metals rise after a long time

Traders are back to buying cheaper precious metals

Gold and silver prices rose on Monday, 18 August, 2008 after the bullion metals gave up all of their gains last week that they had registered earlier this year. Traders were back in buying spree after prices fell to new lows last week. Prices also rose as the dollar fluctuated against other currencies. Barring today and one day in between, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008. Silver prices also fell for the day.

Today, Comex Gold for December delivery rose $13.6 (1.7%) to close at $805.7 ounce on the New York Mercantile Exchange. It fell to an intra day high price of $807.5. Last week, the yellow metal gave up 8.4%. With today’s gain, it has lost 12.7% in August, 2008 till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (22%) since then.

This year, gold prices have lost 3.9% till date as the dollar rallied against the euro. It has lost almost $116 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 September delivery rose 28.5 cents (2.2%) to $13.1 an ounce. With today’s rose silver has lost almost 11% in 2008 till date. Last week, it gave up 16.4%. 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 23% and 38% 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 dollar started the day on a weak note but then went up strongly against the euro and other major rivals. But then, in course of the day, it lost some ground. The dollar index, which measures the greenback against a basket of currencies, fell 0.1% to 77.07. Earlier in the day, it was at 77.111, up from previous session’s close at 77.080.

In economic news on Monday, U.S. home builders report checked in very gloomy in August. The National Association of House Builders issued its August index around 1 pm E.T today. The NAHB/Wells Fargo housing market index remained at a record-low 16 in August. Two of the three components of the index turned higher, while the third was unchanged. At 16, the sentiment index shows that barely one-in-six builders have a good feeling about the market.

At the crude market on Monday, crude oil fell amid signs Tropical Storm Fay will miss rigs and platforms in the Gulf of Mexico, which accounts for about a fifth of U.S. production. Crude oil for September delivery fell 90 cents (0.8%) to settle at $112.87 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 higher by Rs 248 (2.2%) at Rs 11,506 per 10 grams. Prices rose to a high of Rs 11,532 per 10 grams and fell to a low of Rs 11,290 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 510 (2.6%) higher at Rs 19,845/Kg. Prices opened at Rs 19,500/kg and rose to a high of Rs 19,967/Kg during the day’s trading.