Biggest drop for bullion metals in three months

Prices plunge as dollar extends a strong rally

Precious metals witnessed their biggest drop in three months on Thursday, 04 February 2010. Prices fell, as the dollar extended a strong rally on Thursday buoyed by debt problems in Europe and disappointing jobless claims data in US.

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 Thursday, gold for April delivery ended at $1,063 an ounce, lower by $49 (4.4%) an ounce on the New York Mercantile Exchange. Last week, gold lost 0.6%. For January 2010, gold lost 1.2%. Year to date, gold has shed 3%.

On Thursday, March Comex silver futures ended lower by 84.2 cents (5.2%) at $15.475 an ounce. Last week, silver ended lower by 4.3%. In January 2010, silver shed 3.9%. Year to date in FY 2010, silver has dropped by almost 8.2%.

In the currency market on Thursday, the dollar index, which weighs the strength of dollar against the basket of six other currencies rose by almost 0.7%.

As per latest reports, Greece is struggling to curb budget deficits that are in excess of European Union limits. The euro weakened to its lowest level since June against the dollar after European Central Bank President Jean-Claude Trichet said the economic outlook is subject to “uncertainty.”

Among economic data expected for the day, the Labor Department in US reported on Thursday, 04 February 2010, that first-time filings for state unemployment benefits climbed to their highest level since mid-December last week. Market was expecting a drop in the number.

As per the report, initial claims rose 8,000 to stand at 480,000 for the week ended on 30 January, 2010. Market was expecting a figure around 450,000. The four-week moving average for initial claims, which smoothes out fluctuations in the weekly data, rose to 468,750, up 11,750. This is the highest level since the week ended 5 December 2009.

Precious metal prices have been slipping since last week due to impending worries from China front where tightening monetary policies are bothering investors due to shaky demand of metals in coming months.

Gold had ended FY 2009 higher by 24%. Silver futures had ended 2009 up 50%. The dollar index had lost 4.2% against its counterparts last year.

Last year, after hitting a low at $807.30 per ounce on 15 January 2009, gold futures rallied almost 51% to hit an all-time high at $1217.40 per ounce during early December of 2009 but fell from those levels at the end. Silver futures had hit a low at $10.42 on 15 January 2009 and hit a high at $19.30 per ounce on 2 December 2009. Like gold, silver also ended lower than its all time high level.

At the MCX, gold prices for April delivery closed lower by Rs 495 (2.97%) at Rs 16,152 per ten grams. Prices rose to a high of Rs 16,644 per 10 grams and fell to a low of Rs 16,079 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 1,043 (4.08%) lower at Rs 24,498/Kg. Prices opened at Rs 25,577/kg and fell to a low of Rs 24,375/Kg during the day's trading.