Bullion metals continue to turn pale

Gold and silver prices drop for second consecutive day

Bullion metal prices softened for the second straight day on Tuesday, 03 February, 2009. Prices fell despite the weak dollar. The reason for the depressed prices was the fact that global meltdown made traders think that demand for precious metals will decline in the coming months.

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 Tuesday, Comex Gold for February delivery fell $14.7 (1.6%) to close at $892 an ounce on the New York Mercantile Exchange. Yesterday price shed almost 2.3%. Last week, gold prices ended higher by 3.5%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are lower by 3.3%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (13%) since then.

On Tuesday, Comex silver futures for March delivery fell 11 cents (0.9%) to end at $12.3 an ounce. For 2008, silver had lost 24%.

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

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 lower by Rs 225 (1.6%) at Rs 13,989 per 10 grams. Prices rose to a high of Rs 14,235 per 10 grams and fell to a low of Rs 13,925 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 224 (1.1%) lower at Rs 19,532/Kg. Prices opened at Rs 19,680/kg and fell to a low of Rs 19,438/Kg during the day's trading.