Good gains for precious metals

Gold manages highest weekly gain in past two months

Bullion metals ended substantially higher on Friday, 21 November, 2008. Gold and silver prices rose as the dollar weakened. Prices of the precious metals rose as investors were back to protect the appeal of the expensive metals.

On Friday, Comex Gold for December delivery rose $43.1 (5.8%) to close at $791.8 an ounce on the New York Mercantile Exchange. Earlier in the day, it touched a high of $801.9. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (21.5%) since then. For the week, gold prices ended higher by 6.6%. 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 5.5% till date. Futures have averaged $882 in 2008. The dollar index has gained 15% 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 Friday, Comex silver futures for December delivery rose 45.6 cents (5%) to $9.505 an ounce. For the week, silver gained 0.15%. For the month of October, silver had slipped by 20%. Till date, silver has lost 36.5% 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.

Precious metals gained on Friday after there were forecasts of further gloominess in the US economy in the coming months. It was reported that economists are forecasting that U.S. unemployment rate will reach 9%, from 6.5% currently, by the end of 2009 and the economy will shrink in each quarter until mid-2009.

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 Friday, the U.S. dollar declined versus major currencies including the euro and British pound as currency markets took the cue from gains in U.S. stocks. The dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, fell to 87.658 from 88.233.

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%.