Big drop for bullion metals

Prices slip as investors try to regain money lost in other markets

Gold and silver prices dropped drastically today, Thursday, 16 October, 2008 as traders tried to gain back some of the money that had lost in other markets. Also pushing gold prices lower were news reports that central banks were selling gold and the relatively strong dollar. Silver prices also fell today.

On Thursday, Comex Gold for December delivery fell $34.50 (4.1%) to close at $804.5 an ounce on the New York Mercantile Exchange. Prices fell to a low of $786.6 earlier during the day. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly since then. Last week, gold prices ended higher by 3.1%.

This year, gold prices have lost 4% till date. For the third quarter ended September, 2008, gold prices ended lower by 5.1%. It was the first quarterly loss for the yellow metal since the second quarter in FY 2007. Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. For first quarter prices gained 10.7%.

On Thursday, Comex silver futures for December delivery fell 54.5 cents (5.4%) to $9.635 an ounce. Till date, silver has lost 39% this year. Silver had ended month and quarter of September 2008 with a loss of 10%. 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.

The latest weekly data from the European Central Bank showed 7.6 tons of gold was sold during the week ended 10 October. This also led to drop in precious metal prices.

In the US stock market on Thursday, 16 October, the Dow fell by almost 350 points during the noon hours but ultimately recovered paring all of its losses and ended 300 points higher.

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.

The dollar extended gains against the yen today but slipped against the euro as risk appetite perked up during a late recovery on Wall Street. The dollar index, which measures the greenback against a trade-weighted basket of six major currencies, was at 82.287, off its peak above 82.5, but still up from 81.551 in previous day’s trading.

At the MCX, gold prices for December delivery closed lower by Rs 401 (3.04%) at Rs 12,784 per 10 grams. Prices rose to a high of Rs 13,303 per 10 grams and fell to a low of Rs 12,590 per 10 grams during the day’s trading.

At the MCX, silver prices for December delivery closed Rs 674 (3.7%) lower at Rs 17,000/Kg. Prices opened at Rs 18,146/kg and fell to a low of Rs 17,000/Kg during the day’s trading.