Weak dollar imparts shine on precious metals

Gold prices cross $900 mark

Precious metals ended substantially higher on Monday, 26 January, 2009 due to the weak dollar and also as nervousness and unsteadiness in equity markets increased the appeal of the precious metals as a safe haven against alternatives. Reports of job cuts across USA unnerved investors today.

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 Monday, Comex Gold for February delivery rose $13 (1.4%) to close at $908.8 an ounce on the New York Mercantile Exchange. Last week, gold prices ended higher by 6.7%. This year gold has gained 2.5% till date. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (20%) since then.

On Monday, Comex silver futures for March delivery gained 17 cents (1.4%) to end at $12.11 an ounce. For 2008, silver had lost 24%.

At the currency market on Friday, the dollar index, which tracks the dollar against a trade-weighted basket of six major currencies, rose 1%.

It was a job cut bloodbath on this Monday today. Among major accompanies announcing job cuts today were Caterpillar, Sprint, GM and Home Depot. The companies announced layoffs to the tune of 20,000, 8,000, 2000 and 7,000 respectively.

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 4 (0.02%) at Rs 14,072 per 10 grams. Prices rose to a high of Rs 14,132 per 10 grams and fell to a low of Rs 13,977 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 13 (0.06%) higher at Rs 19,260/Kg. Prices opened at Rs 19,300/kg and rose to a high of Rs 19,333/Kg during the day's trading.