Precious metals turn a little pale

Losses in equity markets drag down precious metals

Bullion metals gave up their earlier gains and ended little lower on Tuesday, 25 November, 2008. Losses in gold and silver prices were limited due to the falling dollar. Prior to today, gold had gained $90 in past four sessions.

On Tuesday, Comex Gold for December delivery fell $1 (0.1%) to close at $818.5 an ounce on the New York Mercantile Exchange. Earlier in the day, it touched a high of $833 and fell to a low of $808. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (18%) since then. Last 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 2% till date. Futures have averaged $882 in 2008. The dollar index has gained 9% 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 Tuesday, Comex silver futures for December delivery fell 9 cents (0.8%) to $10.27 an ounce. Last week, silver gained 0.15%. For the month of October, silver had slipped by 20%. Till date, silver has lost 27.8% 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 and also vice versa. Losses in equity markets also force traders to sell gold.

At the currency market on Tuesday, the dollar fell against its major rivals after the Federal Reserve unveiled a new plan to support the issuance of debt backed by consumer and small-business debt.

In order to save the US economy from slipping further, the Federal Reserve created a program that will purchase direct obligations of housing-related government-sponsored enterprises such as Fannie Mae and Freddie Mac. The Fed is taking this action to reduce the cost and increase the availability of credit to purchase houses. The Fed will purchase up to $100 billion in direct GSE obligations and up to $500 billion in mortgage-backed securities.

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 lower by Rs 66 (0.5%) at Rs 12,981 per 10 grams. Prices rose to a high of Rs 13,156 per 10 grams and fell to a low of Rs 12,885 per 10 grams during the day's trading.

At the MCX, silver prices for December delivery closed Rs 166 (0.95%) lower at Rs 17,192/Kg. Prices opened at Rs 17,379/kg and fell to a low of Rs 17,005/Kg during the day's trading.