Bullion metals drop for second straight day

Gold manages to end week higher by more than 3%

A strong dollar and profit taking among traders pushed precious metals lower for second straight day on Friday, 10 October, 2008. It should be noted that before that the yellow metal had gained after the stocks at Wall Street continued to plunge on global economic worries thereby strengthening the yellow metal’s demand as a safe haven for investment. Silver prices also fell on that day. Investors generally tend to seek safety in gold when the economy falls into turmoil.

On Friday, Comex Gold for December delivery fell $27.5 (3.1%) to close at $859 an ounce on the New York Mercantile Exchange. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly since then. For the week, gold prices ended higher by 3.1%.

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%. This year, gold prices have gained 2.8% till date.

On Friday, Comex silver futures for December delivery fell 9% to $10.6 an ounce. Silver had ended month and quarter of September 2008 with a loss of 10%. It ended August with a loss of 2.4% and July 2008 with a gain of 3%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. Till date, silver has lost 31% this year. The metal also had gained for seven straight years.

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 Friday, the dollar index, which measures the currency against a trade-weighted basket of counterparts, rallied 1.9%.