Higher crude helps bullion metals rise

Strong dollar limits the gains

Higher crude prices helped bullion metals erase their early gains and end higher for the day on Tuesday, 26 August, 2008. It increased the precious metals’ appeal against a hedge against inflation. But gold’s gains were limited due to the strong dollar which rallied to its highest levels against the euro in six months. Barring six sessions, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008. Silver prices also rose on Tuesday.

On Tuesday, Comex Gold for December delivery rose $2.4 (0.3%) to close at $828.1 an ounce on the New York Mercantile Exchange. It fell to an intra day low price of $812 earlier. Last week, the yellow metal ended higher by 5.2%, after five consecutive weeks of loss. With today’s gain, gold has lost 9.7% in August, 2008 till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (19.35%) since then.

This year, gold prices have lost 1.2% till date as the dollar rallied against the euro. But still, euro has managed to gain 0.5% against the dollar till date. It has lost almost $93 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 December delivery rose 19.9 cents (1.5%) to $13.678 an ounce. Last Thursday, 24 August, 2008, silver had registered largest one day gain in almost two years. With today’s gain, silver has lost almost 8.3% 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 19.7% and 32.5% from their all time highs that they reached earlier this year.

At the crude market on Tuesday, crude oil rose more than $1 a barrel on forecasts showing that Hurricane Gustav may enter the Gulf of Mexico, home to more than a fifth of U.S. oil production. Crude oil for October delivery rose $1.16 (1%) to settle at $116.27 a barrel

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 Tuesday, the dollar index, which tracks the value of the dollar against a basket of other major currencies, climbed 0.6%. The index earlier traded up 1% on positive economic news at Wall Street.

Among economic news of the day at Wall Street, the Conference Board in USA reported today, that July consumer confidence spiked 9.6% to 56.9 from the previous month. This was much ahead of the expected 2.1% increase to 53.

Also, the U.S. Department of Commerce reported today that July new home sales rose 2.4% to a seasonally adjusted annualized rate of 515,000 from a downwardly revised June reading of 503,000 against an expected reading reading of 525,000. New home sales were down 35% from the prior year, but have shown some stabilization in recent months.

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 39 (0.3%) at Rs 11,761 per 10 grams. Prices rose to a high of Rs 11,810 per 10 grams and fell to a low of Rs 11,593 per 10 grams during the day’s trading.

At the MCX, silver prices for September delivery closed Rs 147 (0.72%) higher at Rs 20,332/Kg. Prices opened at Rs 20,248/kg and rose to a high of Rs 20,410/Kg during the day’s trading.