Precious metals slump slump

Gold and silver drop as dollar gathers strength

Precious metals slumped on Monday, 22 June, 2009. The sliding crude price and strong dollar reduced the appeal of precious metals as a hedge against inflation thereby pushing their prices 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 Monday, gold for August delivery ended at $921, lower by $15.2 (1.6%) an ounce on the New York Mercantile Exchange. It was the lowest level for the yellow metal in six weeks. Last week, gold ended lower by 0.5%. Year to date, gold prices are higher by 6.2%.

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 (10%) since then.

On Monday, Comex silver futures for July delivery fell 49.7 cents (3.5%) at $13.703 an ounce. Last week, silver ended lower by 4.5%. 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 25.7% this year. For 2008, silver had lost 24%.

In the currency market on Monday, the U.S. dollar rose against most other major currencies except the Japanese yen after the World Bank warned of a deeper global economic contraction. The dollar index, which measures the strength of the dollar against a basket of six other currencies, rose by more than 0.5%.

Yesterday, the World Bank revised down global growth forecast in 2009 from - 1.7% to - 2.9%. US economy is expected to contract deeper by - 3.0%, down from - 2.4%. Euro zone is expected to contract by - 4.5%, down from - 2.7% while Japan is expected to contract by - 6.8%, down from - 5.3%. Outlook for emerging markets are mixed with Russia expected to drop - 7.5%, down from - 4.5% and Brazil to contract - 1.1%, down from 0.5%. However, China's economy is expected to expand 7.2%, up from 6.5% while India's economy is expected to expand 5.1%, up from 4.0%.

In the crude market today, July crude futures dropped $2.62, or 3.8%, to $66.93 a barrel, the lowest closing level since 3 June, 2009. Monday's loss came after crude sustained a 3% decline last week.

In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.

At the MCX, gold prices for August delivery closed lower by Rs 34 (0.23%) at Rs 14,508 per 10 grams. Prices rose to a high of Rs 14,589 per 10 grams and fell to a low of Rs 14,444 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 423 (1.86%) lower at Rs 22,263/Kg. Prices opened at Rs 22,630/kg and fell to a low of Rs 22,225/Kg during the day's trading.