Bullion metals go down

Stimulus hopes weigh on precious metal prices

After rising in previous three sessions, bullion metal prices went down on Monday, 09 February, 2009. Anticipation that the bailout plan for banks and stimulus package for overall economy will reduce the appeal of the precious metals as alternate investment, hammered the bullion metal prices today. Limiting their loss was the weak 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. But silver prices dropped.

On Monday, Comex Gold for February delivery fell $21.5 (2.4%) to close at $892.4 an ounce on the New York Mercantile Exchange. 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 1%.

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

On Monday, Comex silver futures for March delivery fell 33 cents (2.5%) to end at $12.83 an ounce. Year to date, silver has climbed 13.7% this year. For 2008, silver had lost 24%.

Investors today were waiting for the bank bailout plan which was supposed to be drafted by Treasure Secretary early today, but have got postponed till 11 am E.T, tomorrow. The broader economy stimulus plan has also been garnering attention and there have been reports in the market that the $827 billion stimulus plan could come to vote by the end of this week.

In the currency market today, the dollar index ended lower by 0.5%.

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 243 (1.7%) at Rs 13,938 per 10 grams. Prices rose to a high of Rs 14,161 per 10 grams and fell to a low of Rs 13,915 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 243 (1.2%) lower at Rs 20,264/Kg. Prices opened at Rs 20,476/kg and fell to a low of Rs 20,221/Kg during the day's trading.