Bullion metals shine more

Prices rise as dollar index drops to lowest level of the year

Precious metals ended higher on Thursday, 21 May, 2009 at Comex. Weak set of economic reports and the depressed dollar increased the appeal of precious metals as a safe haven for alternative investment thereby taking them higher. A report by World gold council yesterday regarding increased demand for gold in first quarter also spurred prices.

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 $13.8 (1.5%) to close at $951.2 an ounce on the New York Mercantile Exchange. It was highest price of gold since 23 March, 2009. Last week, gold ended higher by 1.8%. Year to date, gold prices are higher by 9.5%.

For the month of April, gold had 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 (9%) since then.

On Thursday, Comex silver futures for July delivery gained 16.5 cents (1.2%) at $14.445 an ounce. Year to date, silver has climbed 27.3% this year. For 2008, silver had lost 24%.

In the currency market on Thursday, the U.S. dollar index, fell 0.8%. With today's drop, the dollar index fell to lowest level of the year.

There came another round of worse-than-expected jobless claims data today. Initial claims for the week ending 16 May totaled 631,000, while continuing claims climbed to 6.66 million. This, once again put pressure on the labor market scenario.

A separate report showed that there was first time increase in leading economic indicators in ten months but the same had little effect on trading. According to the data, leading indicators for April increased 1%, which topped the 0.8% increase that was expected.

In a report issued yesterday, the World Gold Council reported that gold investment demand in the first quarter more than tripled from a year ago to a record level as investors piled into gold exchange-traded funds to hedge against the global economic downturn.

The report detailed that investment demand totaled 595.9 metric tons in the first three months of the year, up from 171.3 metric tons a year ago. Total gold demand, however, marked a more modest increase, as jewelry and industrial consumption declined. Overall, gold consumption hit 1,015.5 metric tons in the first quarter, up 38% from a year ago.

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 160 (1.1%) at Rs 14,493 per 10 grams. Prices rose to a high of Rs 14,513 per 10 grams and fell to a low of Rs 14,352 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 200 (0.89%) higher at Rs 22,467/Kg. Prices opened at Rs 22,349/kg and rose to a high of Rs 22,548/Kg during the day's trading.