Bullion metals gain despite strong dollar

Bank of America's earning report details rekindles credit fears

Despite a strong dollar, bullion metals ended higher on Monday, 20 April, 2009. Prices rose as earning report from Bank of America once again raised concerns about the overall economic scenario thereby increasing the appeal of precious metals as an alternate source of investment.

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 Monday, Comex Gold for June delivery rose $19.6 (2.3%) to close at $887.5 an ounce on the New York Mercantile Exchange. Last week, gold ended lower by 1.7%. Year to date, gold prices are higher by 0.3%.

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 (16%) since then.

On Monday, Comex silver futures for May delivery gained 31.5 cents (2.7%) at $12.105 an ounce. Year to date, silver has climbed 6.6% this year. For 2008, silver had lost 24%.

On Monday, Bank of America rekindled fear about credit deterioration. Bank of America increased its credit loss provisions to $13.4 billion in the first quarter from $8.5 billion in the fourth quarter.

In the currency market today, the dollar index gained 0.9% today.

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 384 (2.7%) at Rs 14,415 per 10 grams. Prices rose to a high of Rs 14,469 per 10 grams and fell to a low of Rs 13,988 per 10 grams during the day's trading.

At the MCX, silver prices for May delivery closed Rs 493 (2.5%) higher at Rs 20,371/Kg. Prices opened at Rs 19,865/kg and rose to a high of Rs 20,480/Kg during the day's trading.