Bullion metals turn pale

Strong dollar lays its fingerprint on precious metals

Bullion metal prices ended lower on Monday, 05 January, 2009 due to 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.

On Monday, Comex Gold for February delivery fell $21.7 (2.5%) to close at $857.8 an ounce on the New York Mercantile Exchange. It fell to a low of $843.5 during intra day trading. Last week, gold prices gained 1%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (15%) since then.

In 2008, gold prices ended higher by 5.5%. The dollar index has gained 12% that year. In the last quarter, gold prices ended marginally higher by 0.6%. 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 March delivery fell 1.9% to $11.29 an ounce. Last week, silver has gained 9%. For 2008, silver lost 24%.

At the currency market on Monday, the dollar was up against most major counterparts. The dollar index gained 1%.

In the crude market on Monday, crude futures went higher. Crude for February delivery ended up $2.47 or 5.3%, at $48.81 a barrel on the New York Mercantile Exchange.

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 lower by Rs 227 (1.7%) at Rs 13,329 per 10 grams. Prices rose to a high of Rs 13,548 per 10 grams and fell to a low of Rs 13,185 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 284 (1.5%) lower at Rs 18,362/Kg. Prices opened at Rs 18,572/kg and fell to a low of Rs 17,627/Kg during the day's trading.