Bullion metals glitter

Prices rise to seven month high as traders continue to buy more

Bullion metal prices went up substantially on Wednesday, 11 February, 2009. Anticipation that the bailout plan for banks and stimulus package for overall economy will increase inflation increased the appeal of the precious metals as alternate investment. Prices rose to almost seven month high. Silver prices also gained today. Prices rose despite a 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 Wednesday, Comex Gold for February delivery rose $30.1 (3.3%) to close at $943.8 an ounce on the New York Mercantile Exchange. The more active April contract rose to a high of $945 today.Last week, gold prices ended down by 1.5%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 6.7%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (14%) since then.

On Wednesday, Comex silver futures for March delivery rose 39 cents (3%) to end at $13.52 an ounce. Year to date, silver has climbed 19% this year. For 2008, silver had lost 24%.

At Capitol Hill today, chairmen of various banks which have already received the first installment if TARP funding and is also on the way to receive the next slot are testifying today in front of the Congress.

In the currency market today, 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 468 (3.3%) at Rs 14,690 per 10 grams. Prices rose to a high of Rs 14,724 per 10 grams and fell to a low of Rs 14,235 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 638 (3.1%) higher at Rs 21,186/Kg. Prices opened at Rs 20,570/kg and rose to a high of Rs 21,273/Kg during the day's trading.