Bullion metals turn pale

Upbeat housing data take shine away from precious metals

Precious metals ended lower on Monday, 18 May, 2009 at Comex. Prices fell today following an upbeat housing report which boosted US stocks today thereby reducing the appeal of precious metals as a safe haven against 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 lost $9.6 (1%) to close at $921.7 an ounce on the New York Mercantile Exchange. Last week, gold ended higher by 1.8%. Year to date, gold prices are higher by 6.3%.

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 (10.9%) since then.

On Monday, Comex silver futures for July delivery lost 18 cents (1.3%) at $13.83 an ounce. Year to date, silver has climbed 17% this year. For 2008, silver had lost 24%.

The National Association of Home Builders reported today that encouraged by low interest rates and the re-emergence of first-time buyers, U.S. home builders' spirits improved again in May bringing its sentiment index to the highest level since the collapse of Lehman Brothers.

The NAHB-Wells Fargo index rose to 16 in May from 14 in April on a scale of zero to 100. It's the highest since the 17 recorded in September. The index got as low as 6 in January. Before the current housing meltdown, the index had never gotten below 20 in its 24-year history. It peaked at 72 nearly four years ago. At 16, the index shows that about one in six builders thinks the market for new homes is "good." The industry trade group received 733 responses to its survey in May.

The report gave a strong boost to the US stocks and the Dow ended 235 points higher for the day.

In the currency market on Monday, the greenback dollar slid against major rivals as equities improved and the sentiment of home builders improved. The dollar index, which weighs the strength of dollar against the basket of six other currencies ended lower by 0.3%.

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 541 (3.7%) at Rs 14,206 per 10 grams. Prices rose to a high of Rs 14,719 per 10 grams and fell to a low of Rs 14,180 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 831 (3.7%) lower at Rs 21,734/Kg. Prices opened at Rs 22,491/kg and fell to a low of Rs 21,632/Kg during the day's trading.