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Thursday, November 13, 2008
Bullion metals turn paler
Firm dollar drags bullion metals lower
Bullion metals ended considerably lower for second straight day on Wednesday, 12 November, 2008. Gold and silver prices fell following the big drop in US stocks at Wall Street today and also due to firm dollar. Investors became concerned that global recession will definitely lower the demand for the precious metals. Since past two sessions, gold has shed almost $28.
On Wednesday, Comex Gold for December delivery fell $14.5 (2%) to close at $718.3 an ounce on the New York Mercantile Exchange. Prices earlier fell to a low of $711.5. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (31%) since then. Last week, gold prices ended higher by 2.2%. For the month of October, gold ended lower by 18%. It was the biggest percentage loss for gold since February, 1983.
This year, gold prices have lost 14.8% till date. The dollar index has gained 12% 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 Wednesday, Comex silver futures for December delivery fell 32.5 cents (3.3%) to $9.805 an ounce. Last week, silver gained 2.3%. For the month of October, silver slipped by 20%. Till date, silver has lost 29.6% 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. Losses in equity markets had also forced traders to sell gold. Since past couple of weeks, precious metals, mainly gold, had dropped as traders tried to gain back some of the money that had lost in other markets.
At the currency market on Wednesday, the dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, was at 87.557, up from 87.250 late Tuesday. The U.S. dollar gained ground against the British pound and Canadian dollar.
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%.
Crude goes below $56
Prices drop to such levels for first time in twenty two months
Crude prices ended substantially lower on Wednesday, 12 November, 2008 and dropped below the $56 mark for the first time in twenty two months. Crude prices following the big drop in US stocks at Wall Street today. Investors became concerned that global recession will definitely lower the demand for crude in coming months.
On Wednesday, crude-oil futures for light sweet crude for December delivery closed at $56.16/barrel (lower by $3.17 or 5.3%) on the New York Mercantile Exchange. Prices reached a low of $55.13 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 71.6% since then. Last week, prices fell by 10%. On a yearly basis, crude price is lower by 40%. For this year in 2008, crude prices have dropped 46.5%.
For the month of October, 2008, crude prices ended lower by 32.6%, the biggest monthly drop since 1983.
At the currency market on Wednesday, the dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, was at 87.557, up from 87.250 late Tuesday. The U.S. dollar gained ground against the British pound and Canadian dollar.
In its latest monthly report issued today, EIA said that it expects world oil demand to rise almost 100,000 barrels per day in 2008 and to remain "virtually flat" in 2009. In US, it expects petroleum-product demand to drop 5.4%, or 1.1 million barrels per day, from the 2007 average to 19.6 million barrels per day in 2008. That marks the first time since 1980 that annual total petroleum consumption is expected to decline by more than 1 million barrels per day. The government also predicts an average crude price of $101.45 for this year and $63.50 for 2009.
OPEC officials decided last month at its meeting at Vienna that OPEC will pare production by 1.5 million barrels a day w.e.f 1 November, 2008. The official production quota is currently 28.8 million barrels, and it decided to cut by 1.5 million in November. After that, Organization of the Petroleum Exporting Countries has pledged to cut production even deeper if prices are not in the $70-$90 range in its 1st December meeting.
The IEA already has cut its 2008 forecast about 1.3 million barrels a day in seven revisions this year. Last week, it published a summary of its annual World Energy Outlook, slashing its 2030 projection by 9.4% to 106 million.
Before that, earlier last month, in the latest monthly prediction, the Organization of the Petroleum Exporting Countries said that global oil consumption will grow 550,000 barrels a day this year compared with a year ago, down 330,000 barrels from last month's forecast. Total consumption will stand at 86.5 million barrels a day. For the next year, demand will grow 800,000 barrels a day, down 100,000 barrels from OPEC's September prediction.
Last month, the Centre for Global Energy Studies said that global oil demand may fall for the first time in 15 years in 2008 and stagnate next year.
For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.
Against this background, December reformulated gasoline fell 5.8 cents to close at $1.2481 a gallon and December heating oil shed 9.4 cents to end at $1.8354 a gallon.
Natural gas for December delivery fell 30 cents, or 4.5%, to finish at $6.405 per million British thermal units.
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