Bullion metals turn paler

Firm dollar drags bullion metals lower

Bullion metals ended considerably lower for second straight day on Wednesday, 12 November, 2008. Gold and silver prices fell following the big drop in US stocks at Wall Street today and also due to firm dollar. Investors became concerned that global recession will definitely lower the demand for the precious metals. Since past two sessions, gold has shed almost $28.

On Wednesday, Comex Gold for December delivery fell $14.5 (2%) to close at $718.3 an ounce on the New York Mercantile Exchange. Prices earlier fell to a low of $711.5. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (31%) since then. Last week, gold prices ended higher by 2.2%. For the month of October, gold ended lower by 18%. It was the biggest percentage loss for gold since February, 1983.

This year, gold prices have lost 14.8% till date. The dollar index has gained 12% 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 Wednesday, Comex silver futures for December delivery fell 32.5 cents (3.3%) to $9.805 an ounce. Last week, silver gained 2.3%. For the month of October, silver slipped by 20%. Till date, silver has lost 29.6% 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 Wednesday, the dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, was at 87.557, up from 87.250 late Tuesday. The U.S. dollar gained ground against the British pound and Canadian dollar.

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%.