Precious metals continue to shine

Gold and silver continue to glitter on encouraging economic reports

Precious metals kicked off June 2009 on a strong note. Bullion metals ended higher once again on Monday, 01 June, 2009 as the dollar continued to sink further. Prices also ended higher as encouraging economic report increased inflation concerns thereby increasing the appeal of precious metals.

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 rose $4.75 (0.5%) to close at $983.55 an ounce on the New York Mercantile Exchange. Last week, gold ended higher by 2%. Year to date, gold prices are higher by 13%.

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 (5.4%) since then.

On Monday, Comex silver futures for July delivery rose 27 cents (0.9%) at $15.88 an ounce. 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 38% this year. For 2008, silver had lost 24%.

The Commerce Department reported today that U.S., the personal-savings rate jumped to a 14-year high of 5.7% in April as after-tax incomes were boosted by provisions of the economic stimulus plan.

Also, on the economic front, China's manufacturing PMI came in at 53.1 in May, slightly below April's 53.5 but stayed above 50 for the third consecutive month, suggesting that the manufacturing sector is maintaining its modest pace of expansion.

In the currency market on Monday, the U.S. Dollar Index, a gauge of the greenback against six major currencies, slid as much as 0.7%, following a 6.1% drop in May. 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 lower by Rs 76 (0.5%) at Rs 14,808 per 10 grams. Prices rose to a high of Rs 14,970 per 10 grams and fell to a low of Rs 14,770 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 147 (0.6%) lower at Rs 24,048/Kg. Prices opened at Rs 24,209/kg and fell to a low of Rs 23,857/Kg during the day's trading.