Dull day for bullion metals

Gold gives up 5% in last five sessions

Bullion metal prices registered losses for the fifth straight day on Thursday, 07 August, 2008 as the dollar strengthened against most currencies. Gold prices have thus given up almost 5% in its last five sessions. 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 December delivery fell $5.1 (0.5%) to close at $877.9 ounce on the New York Mercantile Exchange. 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 5% till date against a 9% 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, 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 Thursday, Comex silver futures for September delivery fell 24.8 cents (1.5%) to $16.257 an ounce. Silver has gained 10% 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.

At the currency markets on Thursday, the dollar gained on the euro after the European Central Bank held policy steady and hinted that no more interest rate hikes are coming for a while. Against this backdrop, the dollar index, a measure of the greenback against a trade-weighted currency basket, was last at 74.59, as against last closing of 74.279 on Wednesday.

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 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 82 (0.7%) at Rs 12,028 per 10 grams. Prices rose to a high of Rs 12,216 per 10 grams and fell to a low of Rs 12,003 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 405 (1.7%) lower at Rs 22,817/Kg. Prices opened at Rs 23,342/kg and fell to a low of Rs 22,700/Kg during the day’s trading.