Bullion metals turn extremely pale

Prices drop to lowest level in two months

Precious metals ended considerably lower on Friday, 14 January 2011 at Comex. Prices fell to lowest levels in two months as most of the pressure in the European region regarding concerns over sovereign debt problems eased and also as China hiked its reserve requirements.



On Friday, gold for February delivery fell by $26.5 (1.9%) ending at $1,360.5 an ounce on the New York Mercantile Exchange. For the week, gold ended lower by 0.6%. Gold prices have dropped 4.3% this year till date.

For the year of 2010, gold ended higher by 30%, its tenth consecutive yearly gain.

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. But bullion metals have registered increase in prices despite strong dollar in recent times and vice versa.

On Friday, March Comex silver futures ended lower by 94 cents (3.2%) at $28.32. Prices lost 1.2% for the week. Prices have shed 8.5% this year till date.

In FY 2010, silver ended higher by 83.7%.

Though some of the recent strength in bullion metals can be attributed to weakness in the U.S. dollar, in which the commodities are denominated, but there is also demand, certainly for gold, from investors seeking a hedge against inflation risks and uncertainty in the global financial system.

In the currency market on Friday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies was in constant search of direction and dropped marginally.

Overnight, the People's Bank of China said it would raise the reserve-requirement ratio of major lenders by half a percentage point from Jan. 20, as it steps up efforts to control excess money supply.

Among economic data expected for the day on Friday, the December Consumer Price Index showed a slightly stronger-than-expected 0.5% increase, but core consumer prices increased just 0.1%. Overall retail sales for December increased 0.6% while sales less autos increased 0.5%, which is a bit shy of what had been widely expected. December industrial production increased 0.8%, which is double the rate of increase that had been generally expected. The preliminary Consumer Sentiment Survey for January from the University of Michigan came in at 72.7. It was down from the prior month, but it's also shy of what had been expected. Business inventories for November were up 0.2%. That's considerably more modest than what had been widely anticipated.

Bullion metal prices are expected to continue with their joyride in the coming months with gold expected to reach between $1,600 and $1,700 an ounce and silver likely to attempt to test highs in the $50 area.