Precious metals shine brightly

Gold marks another all time high record closing

Precious metals ended substantially higher on Wednesday, 12 May at Comex as euro zone debt problems just failed to abate. Long-term implications of the European Union's rescue package and its impact on the currencies, specially on the euro, bothered investors and lured investors into safe-haven assets such as gold.

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 June delivery ended at $1,243.1 an ounce, higher by $22.8 (1.9%) an ounce on the New York Mercantile Exchange. It was the highest ever closing for gold at Comex since trading commenced in 1974. It rose to a high of $1,249.3 during intra day trading. Gold for June delivery had settled above $1,200 in early December, only to pull back to $1,172 area and dip as much as the $1,050 vicinity in early February. Before today, on 3 December 2009, gold had touched an all time intra day high of $1,226.4.

Last week, gold ended higher by 2.5%. For the month of April, gold ended higher by 6%. For the first quarter of this year, gold rose by 1.7%, its sixth quarterly rise. On a year to date basis, gold is higher by 12.9%.

On Wednesday, July Comex silver futures ended higher by 37 cents (1.9%) at $19.66 an ounce. Earlier, prices reached a high of $19.365. Last week, silver ended lower by 0.9%. For the month of April, silver ended higher by 4.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 11%.

A decision by the European Union and International Monetary Fund leaders to pledge financial support to the eurozone brought about a wave of buying and short covering that caused the stock markets across globe to surge in its best single-session percentage gain in more than a year on Monday, 10 May. As per plan, countries in the eurozone that face financial uncertainty will be eligible to receive some 500 billion euros from the EU and another 250 billion euros from the IMF. In addition to those measures, the European Central Bank will buy eurozone bonds from the secondary market and the Federal Reserve has reactivated swap lines with foreign institutions. At least for the time being, those efforts have eased contagion concerns that have surrounded Greece for weeks.

But traders mulled over the fact today that in the long term how much financial aid will be pledged for euro zone countries that face tenuous fiscal conditions and also the issue of how those funds will be allocated efficiently and whether recipients can remedy their underlying problems. The long-term implication of this on the euro and worries about inflation also bothered investors.

In the currency market today, the euro dropped once again against the dollar. The euro has slipped 10.6% against the dollar this year. The dollar index, which measures the strength of the dollar against a basket of six other currencies rose by 0.4%.

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 June delivery closed higher by Rs 332 (1.85%) at Rs 18,229 per ten grams. Prices rose to a high of Rs 18,278 per 10 grams and fell to a low of Rs 17,920 per 10 grams during the day's trading.

At the MCX, silver prices for July delivery closed Rs 444 (1.5%) higher at Rs 29,942/Kg. Prices opened at Rs 29,460/kg and rose to a high of Rs 30,050/Kg during the day's trading.