Investors buy gold

Despite a relatively stronger dollar and tumbling crude oil prices, bullion metals ended higher on Monday, 06 October, 2008. The yellow metal gained after the stocks at Wall Street plunged on global economic worries thereby strengthening the yellow metal’s demand as a safe haven for investment. Silver prices also gained today. Investors tend to seek safety in gold when the economy falls into turmoil.

On Monday, Comex Gold for December delivery gained $33 (3.9%) to close at $866.2 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 third quarter, 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 Monday, Comex silver futures for December delivery fell 0.4% to $11.9 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 8% 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 crude market on Monday, crude futures closed at their lowest level in eight months as concerns over the health of the global economy and a historic drop in the U.S. stock market pushed prices for crude below the $88-per-barrel level. Crude for November delivery closed at $87.81 per barrel on the New York Mercantile Exchange, down $6.07, or 6.5%. It traded as low as $87.80 earlier during the day.

At the currency markets on Monday, the dollar rallied against the euro and the British pound but fell sharply against the yen, as the Dow Jones Industrial Average fell below 10,000 points for the first time since October 2004. The dollar index, which tracks the performance of the greenback against a trade-weighted basket of six major currencies, stood at 81.656, up from 80.606 late Friday. Earlier, it rose as high as 81.713.

At Wall Street today, The Dow Jones Industrial Average fell as much as 800 points to trade below the 10,000 mark as nervousness over the credit crisis spread after the U.S. government's $700 billion bailout and interventions in Europe only seemed to add to investor anxiety. But hopes of a coordinated intervention to stop the bleeding in global markets helped the Dow recoup half of its losses, to close down 369 points, or 3.6%, to 9,955.

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 December delivery closed higher by Rs 495 (3.8%) at Rs 13,336 per 10 grams. Prices rose to a high of Rs 13,430 per 10 grams and fell to a low of Rs 12,708 per 10 grams during the day’s trading.

At the MCX, silver prices for December delivery closed Rs 34 (0.17%) higher at Rs 19,095/Kg. Prices opened at Rs 18,955/kg and rose to a high of Rs 19,350/Kg during the day’s trading.