Bullion metals turn paler

Gold and silver prices drop for second consecutive day

Bullion metal prices ended lower for second straight day on Tuesday, 24 February, 2009. The drop in prices was mainly due to selling by traders who booked profits after gold's surge in past couple of days. Deep recession fears have been increasing the appeal of the precious metals as a safe haven against alternatives since past few days.

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 Tuesday, Comex Gold for April delivery fell $25.5 (2.6%) to close at $969.1 an ounce on the New York Mercantile Exchange. Last week, gold ended roughly higher by 5.5%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 11.4%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (6%) since then.

On Wednesday, Comex silver futures for March delivery fell 45.5 cents (3.1%) to end at $13.995 an ounce. Year to date, silver has climbed 25.1% this year. For 2008, silver had lost 24%.

The World Gold Council reported last week 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 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 404 (2.45%) at Rs 15,484 per 10 grams. Prices rose to a high of Rs 15,897 per 10 grams and fell to a low of Rs 15,355 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 912 (3.9%) lower at Rs 22,689/Kg. Prices opened at Rs 23,460/kg and fell to a low of Rs 22,300/Kg during the day's trading.