Bullion metals turn pale

Strong dollar and upbeat consumer data drag bullion metals lower

Precious metals ended lower on Tuesday, 26 May, 2009 at Comex. Prices gave up some of their prior week's gains after upbeat consumer sentiment data hit the wires today. The strong dollar also played a pivotal role in getting bullion metals down.

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 fell $5.6 (0.6%) to close at $953.3 an ounce on the New York Mercantile Exchange. Earlier during the day, it fell to a low of $936.6. Last week, gold ended higher by 3%. Year to date, gold prices are higher by 9.7%.

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 (8%) since then.

On Tuesday, Comex silver futures for July delivery fell 9.5 cents (0.6%) at $14.6 an ounce. Year to date, silver has climbed 28.4% this year. For 2008, silver had lost 24%.

In the currency market on Tuesday, the U.S. dollar index, rose 0.9%. The greenback rose considerably today on positive consumer sentiment data.

The Conference Board in US reported on Tuesday, 26 May, 2009 that reading on U.S. consumer confidence jumped to 54.9 in May from an upwardly revised 40.8 in April as expectations for jobs improved. Market was expecting a reading around 43. Consumers have brighter expectations for jobs in coming months, but their overall confidence remains relatively low. The gain is the fourth-largest in the 32-year history of the survey, and the index is at its highest level in eight months.

The report detailed that for May, consumers' expectations rose to 72.3 from 51 as those expecting business conditions to improve rose to 23.1% from 15.7%, and those expecting more jobs rose to 20% from 14.2%. Consumers' appraisal of the present situation rose to 28.9 from 25.5, though many still view business conditions as "bad."

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 16 (0.1%) at Rs 14,572 per 10 grams. Prices rose to a high of Rs 14,669 per 10 grams and fell to a low of Rs 14,518 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 107 (0.46%) lower at Rs 22,749/Kg. Prices opened at Rs 22,830/kg and fell to a low of Rs 22,553/Kg during the day's trading.