Yellow metal dives again

Fresh rescue plan for the financial crisis reduces precious metal’s appeal

A partial rebound in US stocks earlier during the day pushed precious metals lower for fourth straight day on Tuesday, 14 October, 2008. Investors generally tend to seek safety in gold when the economy falls into turmoil and vice versa. But silver prices again rose for the day as copper prices once again rebounded today.

Ahead of the open on Wall Street, investors reacted favorably as Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke discussed the government's bank rescue plan, offering reassurances that it would work. Stocks in Europe and Asia rose for a second day after Treasury Secretary Henry Paulson announced plans to buy stakes in financial firms to ease the lending crisis.

On Monday, Comex Gold for December delivery fell $3 (0.4%) to close at $839.5 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. Last week, gold prices ended higher by 3.1%.

This year, gold prices have gained 0.2% 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 Monday, Comex silver futures for December delivery gained 27 cents (2.5%) to $11.06 an ounce. Till date, silver has lost 26% 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.

In the US stock market on Monday, 14 October, the Dow surged up by more than 400 points in first couple of hours of trading, but then it gave up a part of its gains during the noon hours. At the end all the indices ended in the red.

The buying interest at the open came as credit markets showed signs of some improvement and the U.S. government followed European efforts to improve the financial system.

Ahead of the open on Wall Street, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke discussed the government's bank rescue plan, offering reassurances that it would work.

As per the plan announced today, the Treasury will buy up to $250 billion in preferred stock from qualifying U.S. financial institutions. Participation in the plan is voluntary, although it appears that there will be plenty of firms taking the Treasury up on its offer. Nine of the largest financial institutions in the world will receive $125 billion, including Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley and Wells Fargo. To participate in the program, firms will have to agree to executive compensation limits, including the elimination of golden parachutes.

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 11 (0.08%) at Rs 13,079 per 10 grams. Prices rose to a high of Rs 13,207 per 10 grams and fell to a low of Rs 12,935 per 10 grams during the day’s trading.

At the MCX, silver prices for December delivery closed Rs 5 (0.02%) higher at Rs 18,769/Kg. Prices opened at Rs 18,840/kg and rose to a high of Rs 18,985/Kg during the day’s trading.