Precious metals shine

Gold and silver shine as dollar continues to weaken

With a weak dollar, gold prices rose for the fourth straight day on Thursday, 11 December, 2008. Bullion metals rose due to the falling dollar which also led to rising crude price. 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 Thursday, Comex Gold for February delivery rose $17.8 (2.2%) to close at $826.6 an ounce on the New York Mercantile Exchange. The metal is already up 9.7% this week. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (20%) since then. Last week, gold prices ended lower by 8.2%.

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 1.1% till date. Futures have averaged $878 in 2008. The dollar index has gained 10% 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 Thursday, Comex silver futures for December delivery rose 23 cents (2.2%) to $10.43 an ounce. Last week, silver lost 7.7%. For the month of November, silver prices had gained 5%. Till date, silver has lost 28.4% 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 Thursday, the U.S. dollar fell sharply against other major currencies as a surge in jobless claims and other negative economic data put the greenback under heavy selling pressure. The dollar index, a measure of the greenback against a trade-weighted basket of six currencies, fell 1.2% today.

The Labor Department reported on Thursday, 11 December, 2008 that the number of first-time filings for state unemployment benefits jumped by 58,000 to a 26-year high of 573,000. The number of people collecting unemployment benefits rose by 338,000 to stand at 4.43 million, also the highest since late 1982. The increase in continuing claims in the week ended 29 November was the most since 1974.

Initial claims represent job destruction, while the level of continuing claims indicates how hard or easy it is for displaced workers to find new jobs.

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.

It was reported earlier this week that gold production in South Africa fell by 14% year-on-year in October. The country's total mining production, however, rose by 3.5% year-on-year in October, with non-gold output rising 6.5%.

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 99 (0.77%) at Rs 12,817 per 10 grams. Prices rose to a high of Rs 12,932 per 10 grams and fell to a low of Rs 12,605 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 95 (0.55%) higher at Rs 17,262/Kg. Prices opened at Rs 17,150/kg and rose to a high of Rs 17,430/Kg during the day's trading.