Precious metals add back some glaze

Gold and silver add some glitter as dollar sheds earlier gains

Bullion metals rose on Thursday, 04 June, 2009 as the dollar gave up its yesterday's gains and ended lower today against its major counterparts. The dollar fell today reversing earlier gains after the European Central Bank decided to keep benchmark interest rates at 1%.

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 rose $16.7 (1.7%) to close at $981.2 an ounce on the New York Mercantile Exchange. Last week, gold ended higher by 2%. Year to date, gold prices are higher by 12.7%.

Gold had ended the month of May higher by 9.8%. It was the highest monthly gain registered by gold in six months. Before this, gold had suffered losses in prior two months. For the month of April and March, 2009, gold had lost 3.7% and 2.1% respectively. But the metal gained 4.3% in the first quarter of this year.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (5%) since then.

On Thursday, Comex silver futures for July delivery rose 58.5 cents (3.8%) at $15.895 an ounce. Earlier during the week, silver prices had risen to nine month high. Last week, silver ended higher by 6.2%. For the month of May, silver gained 26.6%. It was the biggest monthly gain for silver in more than two decades. Year to date, silver has climbed 40% this year. For 2008, silver had lost 24%.

In the currency market on Thursday, the U.S. dollar index, a gauge of the greenback against six major currencies, continued its recent strength initially following Asian nation announcements that they didn't see an alternative to the greenback as a reserve currency. But then the dollar slipped after the European Central Bank decided to keep benchmark interest rates at 1%. The dollar had risen yesterday for first time in five sessions after data showed the European economy shrank 2.5% in the first quarter. The index lost 1% in April and 2.9% in March.

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 August delivery closed higher by Rs 165 (1.12%) at Rs 14,870 per 10 grams. Prices rose to a high of Rs 14,892 per 10 grams and fell to a low of Rs 14,666 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 632 (2.7%) higher at Rs 24,362/Kg. Prices opened at Rs 23,787/kg and rose to a high of Rs 24,395/Kg during the day's trading.