Bullion metals shine

Weak economic reports act as the catalyst

Dour and weak economic reports pushed gold prices higher on Thursday, 29 January, 2009. Gold prices also rose as it increased the appeal of the metal as a safe haven against alternate investment. Gold rose despite the 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. But silver prices dropped.

On Thursday, Comex Gold for February delivery rose $16.9 (1.9%) to close at $905.1 an ounce on the New York Mercantile Exchange. Last week, gold prices ended higher by 6.7%. This year gold has gained 3.1% till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (14%) since then.

On Thursday, Comex silver futures for March delivery rose 38.2 cents (1.5%) to end at $12.145 an ounce. For 2008, silver had lost 24%.

At the currency market on Wednesday, the dollar index, which tracks the dollar against a trade-weighted basket of six major currencies, continued to rise. The dollar index rose 0.3% today.

Among major economic reports for the day, there were quite a few of them. The durable goods order, initial jobless claims data and December new home sales data – all checked in below expectation.

Initial jobless claims for the week ended Jan. 24 increased modestly to 588,000, which is a bit above the consensus estimate of 575,000 claims. Continuing claims climbed to 4.78 million. That is the highest level of continuing claims dating back to four decades.

December durable goods orders declined 2.6%. That was the fifth straight monthly decline reflecting an ongoing pullback in business investment. The drop was more than expected. Excluding transportation, orders were down 3.6%.

In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.

Last year, the weakening dollar and higher global demand for raw materials had led to records for commodities including gold. Gold reached a record in March 2008 as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the last 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.

Prior to 2008, 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 252 (1.8%) at Rs 14,146 per 10 grams. Prices rose to a high of Rs 14,172 per 10 grams and fell to a low of Rs 13,753 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 238 (1.2%) higher at Rs 19,508/Kg. Prices opened at Rs 19,182/kg and rose to a high of Rs 19,580/Kg during the day's trading.