Bullion metals slip

Gold and silver prices register substantial fall as oil prices retreat

Bullion metals ended considerably lower on Tuesday, 02 September, 2008 after crude prices retreated back on news that hurricane Gustav will not hit the oil rigs at the Gulf of Mexico. Prices also slipped after the dollar strengthened. These factors reduced the precious metal’s appeal as a hedge against inflation.

On Tuesday, Comex Gold for December delivery fell $24.7 (3%) to close at $810.5 an ounce on the New York Mercantile Exchange. It fell to an intra day low price of $795.2, lower by $40. 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 3.3% till date as the dollar rallied against the euro. Gold had lost 8.8% in August, 2008. 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 fell 56.1 cents (4.1%) to $13.15 an ounce. Silver has lost almost 12% in 2008 till date. It ended August with a loss of 2.4%. 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.

At the crude market on Tuesday, crude-oil futures for October fell $5.75 (5%) to $109.71 a barrel. Earlier, the price touched $105.46, the lowest since April, 2008. Commodities tumbled the most since March today, led by energy prices, as Hurricane Gustav spared U.S. Gulf petroleum rigs the destruction caused by Katrina and Rita in 2005.

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, a sharp fall in oil prices and rising worries about the economic outlook in Europe and Asia boosted the U.S. dollar. The dollar rose to its highest in almost seven months against the euro. The dollar index, a measure of the greenback against a trade-weighted basket of currencies, was 0.9% higher at 78.02.