Precious metals stay strong

Gold glitters more while silver reaches nine month high

Bullion metals continued to stay strong on Tuesday, 02 June, 2009 as the dollar continued to drown further increasing the appeal of precious metals as a hedge against inflation. Prices also ended higher on account of an encouraging economic report in the housing sector.

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 August delivery rose $4.4 (0.4%) to close at $984.4 an ounce on the New York Mercantile Exchange. Last week, gold ended higher by 2%. Year to date, gold prices are higher by 13.4%.

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 (4.7%) since then.

On Tuesday, Comex silver futures for July delivery rose 22 cents (1.4%) at $15.955 an ounce. It was a nine month high price for silver. Earlier during the day, it reached a high of $16.02. 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 39.4% this year. For 2008, silver had lost 24%.

The National Association of Realtors reported on Tuesday, 02 June, 2009 that pending sales of existing homes in US rose for the third month in a row in April, boosted by record-low mortgage rates and special incentives for first-time buyers. In April, existing-home sales rose 2.9% to a seasonally adjusted annual rate of 4.68 million, 3.5% below year-earlier sales rates.

In the currency market on Tuesday, the U.S. Dollar Index, a gauge of the greenback against six major currencies, slid as much as 1%, following a 6.1% drop in May. It was the fourth straight drop for the dollar on speculation that record U.S. borrowing will further weaken the dollar. 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 49 (0.33%) at Rs 14,857 per 10 grams. Prices rose to a high of Rs 14,915 per 10 grams and fell to a low of Rs 14,752 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 321 (1.33%) higher at Rs 24,369/Kg. Prices opened at Rs 23,985/kg and rose to a high of Rs 24,449/Kg during the day's trading.