Mid East tension takes precious metal prices higher

Gold and silver prices go up amid thin trading volumes

Bullion metal prices ended higher on Monday, 29 December, 2008 due to the rising tensions in the Middle East, higher crude oil price and also the somber dollar. 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.

On Monday, Comex Gold for February delivery rose $4.1 (0.5%) to close at $875.3 an ounce on the New York Mercantile Exchange. Prices rose to a high of $892 during intra day trading. Last week, gold prices gained 4%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (15.7%) since then.

This month, gold prices have rose 6.9% till date. For the month of November, gold prices ended higher by 14%. Prior to this, 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 are higher by 4.6%. Futures have averaged $865 in 2008. The dollar index has gained 8% 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 March delivery rose 28 cents (2.7%) to $10.81 an ounce. For the month of November, silver prices had gained 5%. Till date, silver has lost 27.3% this year.

For the month of October, silver had slipped by 20%. 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.

As per reports, in the Gaza Strip, Israeli air strikes aimed at targets linked to militant group Hamas and it continued for a third day. Hamas said 300 Palestinians have died since Saturday.

At the currency market on Monday, the dollar was down against most major counterparts. The dollar index lost 0.24% today.

In the crude market on Monday, crude futures went higher earlier today amid tensions in the Middle East. Prices touched a high of $42/barrel but then dropped. Prices, once again shot up and ended around $41/barrel.

The Federal Reserve surprised market earlier this month to save the U.S. economy slashing interest rates to just above zero and promising to try an array of new economic measures to stimulate spending. The central bank's Federal Open Market Committee established a target range for the federal funds rate of zero to 0.25%, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%.

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 0.25% from 5.25% in September, 2007. The Fed did it in nine 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 February delivery closed higher by Rs 243 (1.8%) at Rs 13,635 per 10 grams. Prices rose to a high of Rs 13,790 per 10 grams and fell to a low of Rs 13,428 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 605 (3.5%) higher at Rs 18,021/Kg. Prices opened at Rs 17,539/kg and rose to a high of Rs 178,402/Kg during the day's trading.