Precious metals lose some sheen

Prices drop on speculation of interest rate hike in medium term

Bullion metal prices fell on Monday, 21 December 2009. Prices fell as traders mulled over the fact that there might be an interest rate hike in the medium term. The relatively strong dollar was also a reason for a drop in prices today.

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 February delivery ended at $1,095.4 an ounce, lower by $15.4 (1.4%) an ounce on the New York Mercantile Exchange. Gold fell below the $1,100 level for first time in more than one and half months. Last week, gold shed 1.1%. The metal fell for three straight weeks.

Gold ended November 2009 higher by 13%. Before that, for the third quarter it ended higher by 8.7%. For the second quarter, gold ended higher by 0.5%. The metal had gained 4.3% in the first quarter of this year. On a year to date basis, gold price is higher by 25.2%.

On Monday, December Comex silver futures ended lower by 28.5 cents (1.7%) at $17.035 an ounce. Last week, silver registered marginal fall. The metal has gained 51.3% this year until date.

In the currency market on Monday, the greenback started the day relatively weak with the dollar index trading with a fractional loss after it was down roughly 0.2% earlier this morning. Then, the dollar's move caused a pullback in commodity prices. The dollar index, which weighs the strength of dollar against the basket of six other currencies rose by almost 0.3%. Last week, the dollar index gained almost 1.7%.

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

At the MCX, gold prices for February delivery closed lower by Rs 14 (0.08%) at Rs 16,969 per ten grams. Prices rose to a high of Rs 16,991 per 10 grams and fell to a low of Rs 16,942 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 24 (0.08%) higher at Rs 27,315/Kg. Prices opened at Rs 27,315/kg and rose to a high of Rs 27,341/Kg during the day's trading.