Precious metals turn dull

Gold and silver prices go down due to a strong dollar

Bullion metal prices ended lower on Tuesday, 23 December, 2008 due to sliding crude price and strong 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 Tuesday, Comex Gold for February delivery fell $9.1 (1.1%) to close at $838.1 an ounce on the New York Mercantile Exchange. Last week, gold prices gained 2.1%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (19%) since then.

This month, gold prices have rose 2.2% 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 0.2%. Futures have averaged $860 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 Tuesday, Comex silver futures for March delivery fell 59 cents (5.5%) to $10.26 an ounce. Last week, silver gained 63 cents (6%). For the month of November, silver prices had gained 5%. Till date, silver has lost 33.5% 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 Friday, the dollar was up against most major counterparts. The dollar index gained 0.2% today erasing earlier losses.

The Federal Reserve surprised market last week 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 53 (0.4%) at Rs 13,073 per 10 grams. Prices rose to a high of Rs 13,208 per 10 grams and fell to a low of Rs 12,990 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 492 (2.81%) lower at Rs 17,187/Kg. Prices opened at Rs 17,644/kg and fell to a low of Rs 17,000/Kg during the day's trading.