Bullion metals drop

Strong dollar takes shine away from precious metals

Bullion metals ended lower on Monday, 17 November, 2008. Prices fell as the dollar climbed, reducing the appeal of the precious metal as an alternative investment. Silver prices also declined.

On Monday, Comex Gold for December delivery fell $0.50 (0.05%) to close at $742 an ounce on the New York Mercantile Exchange. Prices earlier fell to a low of $729.6. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (28%) since then. Last week, gold prices ended higher by 1.1%. For the month of October, gold had ended lower by 18%. It was the biggest percentage loss for gold since February, 1983.

This year, gold prices have lost 11% till date. Futures have averaged $882 in 2008. The dollar index has gained 16% this year. 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 fell 16 cents (1.7%) to $9.33 an ounce. Last week, silver lost 4.7%. For the month of October, silver had slipped by 20%. Till date, silver has lost 22.5% 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.

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. Losses in equity markets had also forced traders to sell gold. Since past couple of weeks, precious metals, mainly gold, had dropped as traders tried to gain back some of the money that had lost in other markets.

At the currency market on Monday, the dollar gained against a weighted basket of six major currencies, extending a two-week rally.

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. In the latest move, the Federal Reserve has cuts its target bank lending rate to 1% from 5.25% in September, 2007. The Fed did it in eight steps.

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 73 (0.61%) at Rs 11,881 per 10 grams. Prices rose to a high of Rs 11,908 per 10 grams and fell to a low of Rs 11,727 per 10 grams during the day's trading.

At the MCX, silver prices for December delivery closed Rs 52 (0.31%) lower at Rs 16,330/Kg. Prices opened at Rs 16,400/kg and fell to a low of Rs 16,182/Kg during the day's trading.