Bullion metals add more shine

Weak initial claims data take bullion metals to highest level in three weeks

Weak set of economic reports increased the appeal of precious metals as a safe bet for investment taking bullion metals higher on Thursday, 23 April, 2009. The weak dollar also added to it.

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 June delivery gained $14.1 (1.6%) to close at $906.6 an ounce on the New York Mercantile Exchange. Last week, gold ended lower by 1.7%. Year to date, gold prices are higher by 2.5%.

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%) since then.

On Thursday, Comex silver futures for May delivery gained 45 cents (3.7%) at $12.755 an ounce. Year to date, silver has climbed 11.9% this year. For 2008, silver had lost 24%.

The Labor Department reported on Thursday, 23 April, 2009 that first-time claims for state unemployment benefits rose in the most recent week, as ongoing claims reached yet another record high. Initial jobless claims rose a seasonally adjusted 27,000 to 640,000 in the week ended 18 April, 2009. The four-week average of initial claims fell 4,250 to 646,750.

Jobless claims a widely tracked indicator because they are close to real time, and are based on actual filings, rather than statistical inference.

The IMF forecast earlier during the week that a 1.3% decline in the world economy, compared with a 0.5% expansion estimated in January, and said growth will be slower next year than previously expected. As per the report, the UK will see its economy shrink by 4.1%, Japan by 6.2%, and the U.S. economy is expected to decline by 2.8%

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 June delivery closed higher by Rs 167 (1.15%) at Rs 14,598 per 10 grams. Prices rose to a high of Rs 14,648 per 10 grams and fell to a low of Rs 14,365 per 10 grams during the day's trading.

At the MCX, silver prices for May delivery closed Rs 586 (2.8%) higher at Rs 21,150/Kg. Prices opened at Rs 20,690/kg and rose to a high of Rs 21,264/Kg during the day's trading.