Bullion metals add little shine

Weaker than expected economic reports increase the appeal of precious metals

Bullion metal ended little higher on Wednesday, 15 April, 2009. Prices rose as traders went back to precious metals today after weak set of economic reports hit the wires today.

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 June delivery rose $1.5 (0.2%) to close at $893.5 an ounce on the New York Mercantile Exchange. Last week, gold ended lower by 1.5%. Year to date, gold prices are higher by 0.9%.

For the month of March, gold fell 2.1%, down for the first month in five. But the metal gained 4.3% in the first quarter. Before March, for the month of February, gold ended higher by 7.4%. For January, 2009, gold had gained 3.9%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (15.5%) since then.

On Wednesday, Comex silver futures for May delivery rose by 3.5 cents (0.3%) at $12.8 an ounce. Year to date, silver has climbed 12% this year. For 2008, silver had lost 24%.

The Labor Department reported today that March industrial production fell 1.5%, which is worse than the 0.9% decline that was expected. Capacity utilization came in at 69.3%, which is in-line with expectations. The report overall was bad and continued to reflect a weak demand environment.

In a separate report, the government reported that, at the consumer level, prices in March slipped 0.1%, but core prices increased 0.2%. Market expected a respective increase of 0.1% and an increase of 0.1%. The government also reported that inflation at the wholesale level fell more sharply than had been anticipated last month amid weaker energy prices.

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 June delivery closed lower by Rs 46 (0.3%) at Rs 14,282 per 10 grams. Prices rose to a high of Rs 14,400 per 10 grams and fell to a low of Rs 14,210 per 10 grams during the day's trading.

At the MCX, silver prices for May delivery closed Rs 17 (0.08%) lower at Rs 21,093/Kg. Prices opened at Rs 21,101/kg and fell to a low of Rs 20,920/Kg during the day's trading.