Bullion metals continue to shine

Precious metals gain on news that banks might raise additional capital

Precious metals ended higher on Tuesday, 05 May, 2009 at Comex. Prices rose today on reports that banks in US might raise additional capital in the near future thereby increasing the appeal of precious metals as a safe bet for 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 Tuesday, Comex Gold for June delivery gained $2.1 (0.2%) to close at $904.3 an ounce on the New York Mercantile Exchange. Earlier in the day, it rose to a high of $916.7. Last week, gold ended lower by 3%. Year to date, gold prices are higher by 1.7%.

For the month of April, gold lost 3.7%, the second consecutive monthly drop. 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 Tuesday, Comex silver futures for July delivery gained 30.7 cents (2.3%) at $13.42 an ounce. Year to date, silver has climbed 13.7% this year. For 2008, silver had lost 24%.

On Tuesday, according to prepared remarks for his Joint Economic Committee testimony, Fed Chairman Bernanke stated that the U.S. economy is moving to resume growth later this year. However, Bernanke also stated that further sizable job losses are likely and inflation will remain low.

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 54 (0.4%) at Rs 14,379 per 10 grams. Prices rose to a high of Rs 14,538 per 10 grams and fell to a low of Rs 14,336 per 10 grams during the day's trading.

At the MCX, silver prices for May delivery closed Rs 346 (1.6%) higher at Rs 21,791/Kg. Prices opened at Rs 21,516/kg and fell to a low of Rs 21,311/Kg during the day's trading.