Precious metals turn pale

Gold and silver witness substantial drops as crude slips and dollar gains

Falling crude price and strengthening dollar took their toll on precious metals on Tuesday, 28 July, 2009. Crude prices slipped for the first time after four consecutive sessions of rise. On the other hand, weak consumer confidence data strengthened the dollar. These factors reduced the appeal of precious metals as a hedge against inflation.

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, gold for August delivery ended at $939.1, lower by $14.40 (1.5%) an ounce on the New York Mercantile Exchange. Last week, gold ended higher by 1.6%. Year to date, gold prices are higher by 6%.

For the month of June, 2009, gold ended down by 5.4%. Gold had ended the month of May higher by 9.8%. It was the highest monthly gain registered by gold in six months. For the second quarter, gold ended higher by 0.5%. The metal had 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 Tuesday, Comex silver futures for September delivery lost 25 cents (1.8%) at $13.74 an ounce. Last week, silver ended higher by 3.5%.

Silver ended 13% down for the month of June, 2009. For the month of May, silver gained 26.6%. It was the biggest monthly gain for silver in more than two decades. For second quarter, silver rose 4.5%. Year to date, silver has climbed 21.7% this year. For 2008, silver had lost 24%.

In the currency market on Tuesday, the dollar index, a six-currency gauge of the greenback's value, rose by more than 0.4%. The dollar strengthened on weak consumer confidence data.

The Conference Board reported on Tuesday, 28 July, 2009 that consumer confidence took its second consecutive monthly drop in July, 2009. The index dropped to 46.6 in July from an unrevised 49.3 in June. In May, the confidence gauge stood at 54.8. The confidence measure was worse than expected. Market was expecting confidence to dip to 48 in July from the June reading.

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 186 (1.2%) at Rs 14,755 per 10 grams. Prices rose to a high of Rs 14,962 per 10 grams and fell to a low of Rs 14,715 per 10 grams during the day's trading.

At the MCX, silver prices for September delivery closed Rs 331 (1.5%) lower at Rs 22,396/Kg. Prices opened at Rs 22,750/kg and fell to a low of Rs 22,258/Kg during the day's trading.