Bullion metals continue to shine

Gold is just $35 below its all time high set at March 2008

Bullion metal prices rose to their highest levels for in seven months for second straight day on Wednesday, 18 February, 2009. Prices rose despite the strong dollar and also as deep recession fears increased the appeal of the precious metals as a safe haven against alternatives.

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 Wednesday, Comex Gold for February delivery rose $10.7 (1.1%) to close at $978.2 an ounce on the New York Mercantile Exchange. During the day, it rose to a high of $980.2 and also dropped to a low of $961.6. Last week, gold prices ended up by 3%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 11%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (11%) since then.

On Wednesday, Comex silver futures for March delivery rose 28 cents (2%) to end at $14.29 an ounce. Year to date, silver has climbed 27% this year. For 2008, silver had lost 24%.

The World Gold Council reported today that demand for gold surpassed $100 billion last year for the first time ever, amid increased industrial and jewelry consumption and investors' purchase of the metal as a safe haven. Gold demand - including jewelry consumption, industrial demand and identifiable investments such as bars, coins and gold exchange-traded funds - hit $102 billion in 2008, up 29% from a year ago. In tonnage terms, gold demand rose 4% to 3,659 tons.

In the currency market on Wednesday, the dollar index ended higher by 0.8%.

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 April delivery closed higher by Rs 70 (0.45%) at Rs 15,561 per 10 grams. Prices rose to a high of Rs 15,617 per 10 grams and fell to a low of Rs 15,372 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 371 (1.6%) higher at Rs 23,155/Kg. Prices opened at Rs 22,700/kg and rose to a high of Rs 23,392/Kg during the day's trading.