Precious metals continue to shine

Gold and silver rise as dollar index sheds 1.6%

After dropping on last Friday, bullion metal prices rose on Monday, 15 December, 2008. Bullion metals rose due to the falling 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 $16 (2%) to close at $836.5 an ounce on the New York Mercantile Exchange. Earlier in the day, it reached a high of $843.7. Last week, gold gained 9%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (19.1%) since then.

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 have lost 0.2% till date. Futures have averaged $878 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 December delivery rose 39 cents (3.8%) to $10.62 an ounce. Last week, silver gained 80 cents (9%). For the month of November, silver prices had gained 5%. Till date, silver has lost 29% 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.

At the currency market on Monday, the dollar fell 1.6% today against a weighted basket of six major currencies. Last week, the greenback tumbled 4%, the most since September 1985.

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.

Market is anticipating that Fed will cut down the fed fund rate to 0.5% in tomorrow's meeting.

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 91 (0.71%) at Rs 12,891 per 10 grams. Prices rose to a high of Rs 12,995 per 10 grams and fell to a low of Rs 12,761 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 272 (1.6%) higher at Rs 17,396/Kg. Prices opened at Rs 17,142/kg and rose to a high of Rs 17,570/Kg during the day's trading