Dull day for precious metals

Strong dollar and sliding crude price impact prices

Bullion metals ended substantially lower for fourth straight day on Thursday, 15 January, 2009 as the dollar strengthened and also due to the weak crude oil price and sliding US stocks. 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 fell $1.5 (0.2%) to close at $807.3 an ounce on the New York Mercantile Exchange. Earlier, prices fell to a low of $801.5 and also rose to a high of $822.1. Last week, gold prices ended down by 2.8%. This year gold has lost 9.3% till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (21%) since then.

On Thursday, Comex silver futures for March delivery fell by 3.5 cents (0.3%) to $10.44 an ounce. Last week, silver has gained 13 cents. For 2008, silver had lost 24%.

At the currency market on Thursday, the dollar was up against most major counterparts. The U.S. dollar rose against the euro on expectations that the European Central Bank will cut its key interest rate later this week. The ECB's key lending rate stands at 2.5%. The dolar index gained 0.6% today.

In the crude market on Thursday, crude-oil futures fell after slew of weak economic reports that hit the wires today. Crude prices ended lower by 10% below $34/barrel.

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 lower by Rs 65 (0.5%) at Rs 12,787 per 10 grams. Prices rose to a high of Rs 12,925 per 10 grams and fell to a low of Rs 12,731 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 111 (0.63%) lower at Rs 17,484/Kg. Prices opened at Rs 17,598/kg and fell to a low of Rs 17,392/Kg during the day's trading.