Bullion metals continue to shine

Gold surges but silver witnesses huge rally

After dropping for two straight days, bullion metals started shining for second straight day on Thursday, 19 March, 2009. The weak dollar was mainly the reason for this. The dollar once again slumped today after Fed said yesterday that it will buy long term treasuries and this also increased the appeal of precious metals as a safe haven against alternatives. Fed's recent moves sparked some good notions about the recovery from the recent recession in US.

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 Thursday, Comex Gold for April delivery rose $68.7 (7.8%) to close at $958.8 an ounce on the New York Mercantile Exchange. During intra day trading, it rose to a high of $969. Last week on Tuesday, gold had dropped below $900 for first time in two months. Last week, the yellow metal ended lower by 1.5%. For the month of February, gold ended higher by 7.4%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 15.8%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (8.9%) since then.

On Thursday, Comex silver futures for May delivery rose 85 cents (13.3%) to end at $13.52 an ounce. Last week, silver fell 0.8% In February, 2009, silver had rose 4.3% after climbing 14% in January. Year to date, silver has climbed 23.6% this year. For 2008, silver had lost 24%.

Yesterday, the Fed said it was committed to buying $300 billion in longer-term Treasurys to help the struggling American economy recover.

In the currency market on Thursday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies, fell by almost 1.5% following yesterday's 3% drop.

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 662 (4.5%) at Rs 15,414 per 10 grams. Prices rose to a high of Rs 15,460 per 10 grams and fell to a low of Rs 14,835 per 10 grams during the day's trading.

At the MCX, silver prices for May delivery closed Rs 1,597 (7.7%) higher at Rs 22,222/Kg. Prices opened at Rs 20,800/kg and rose to a high of Rs 22,425/Kg during the day's trading.