Bullion metals turn pale

Strong dollar takes away shine from precious metals

After two consecutive days of rise, precious metal prices shed some of their glaze on Wednesday, 03 February 2010. Prices fell, as economic report for the day that checked were upbeat in nature thereby strengthening the dollar.

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 Wednesday, gold for April delivery ended at $1,112 an ounce, lower by $6 (0.5%) 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 gained 1.4%.

On Wednesday, March Comex silver futures ended lower by 42 cents (2.5%) at $16.32 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 3%.

Among economic data expected for the day, The Institute for Supply Management reported on Wednesday, 03 February 2010 that the service sector of the US economy moved back into growth territory in January 2010. The ISM nonmanufacturing index rose to 50.5% from 49.8% in December against an expected figure of 51.

Readings above 50% in the diffusion index indicate that activity at more firms is expanding than contracting. The index had been above 50% for two months in the fall but then slipped under that threshold in November and December. Only four industries reported growth, while 11 reported contraction.

A private sector report also showed that private firms in US shed the least number of jobs in January 2010 since the recession hit in 2007.

In the currency market on Wednesday, the dollar index, which weighs the strength of dollar against the basket of six other currencies rose by almost 0.5%.

Precious metal prices slipped 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 107 (0.63%) at Rs 16,647 per ten grams. Prices rose to a high of Rs 16,815 per 10 grams and fell to a low of Rs 16,601 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 520 (1.99%) lower at Rs 25,541/Kg. Prices opened at Rs 26,080/kg and fell to a low of Rs 25,460/Kg during the day's trading.