Significant losses for bullion metals

Gold and silver prices reach new lows not seen in this year

Gold and silver prices once again fell on Friday, 15 August, 2008 due to a strong dollar. Prices also slipped due to the slipping crude prices. Bullion metals also registered substantial losses for the week. Barring one day in between, gold and silver prices had registered losses in all the trading sessions in the current month of August, 2008 and had shed 14.4% in this month. 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 $22.4 (2.8%) to close at $792.1 ounce on the New York Mercantile Exchange. It fell to an intra day low price of $784. For the week, it gave up 8.4%. With this, it lost 14.4% in August, 2008 till date. Last week, it had ended lower by 5.8%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly since then.

This year, gold prices have lost 5.6% till date as the dollar rallied against the euro. It has lost almost $130 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 Friday, Comex silver futures for September delivery fell $1.415 (9.9%) to $12.815 an ounce. With today’s drop silver has lost almost 15% in 2008 till date. For the 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 25% and 40% from their all time highs that they reached earlier this year.

At the currency markets on Friday, the dollar's rally extended to a six-month high on as traders continued to react to data showing the economies of five of the Group of Seven industrialized nations contracted during the second quarter. The dollar index, which measures the greenback against a basket of currencies, rose to 77.16 from 76.65 in the previous day.

In economic news on Friday, the Federal Reserve reported that the output of U.S. factories rose 0.4% in July, the best gain in 10 months.

Separately, the New York Federal Reserve Bank reported that manufacturers in New York state said business improved slightly in early August. The Empire state index rose to 2.8 in August from negative 4.9 in July.

At the crude market on Friday, crude-oil futures closed lower for a second session to tally a weekly loss of more than 1%, as moves in the foreign-exchange market triggered broad losses in dollar-denominated commodities. Consumption remained a key concern, as a report from a group of key oil producers showing that the slowing U.S. economy and high oil prices have hurt overall oil demand. Crude for September delivery lost $1.24, or 1.1%, to close at $113.77 a barrel on the New York Mercantile Exchange.

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%.