Precious metals rings New Year in a shining way

Precious metals ended higher on the first day of the New Year on Monday, 03 January 2011 at Comex. Gold prices recovered from earlier weakness and ended mildly higher while silver ended modestly higher. The dollar shed off its initial strength and pared its initial gains partly. Prices rose as the economic reports checked in mixed in nature.



On Monday, gold for February delivery rose by $1.5 (0.1%) ending at $1,422.9 an ounce on the New York Mercantile Exchange. Last week, gold ended higher by 3%.

Gold ended the month of December, gold ended higher by 2.5%. It ended the fourth quarter, higher by 8%, its ninth consecutive quarterly gain. Before this, it ended the third quarter higher by 5%. For the second quarter, gold ended up by 12%. For the first quarter of this year, gold rose by 1.7%. 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.

Though some of the recent strength in 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.

Gold prices had been doing well since late August on expectations that Federal Reserve efforts at monetary stimulus will depress the dollar, making gold more valuable as an alternative store of wealth.

On Monday, December Comex silver futures ended higher by 19 cents (0.6%) at $31.13. Prices gained 3.3% last week.

Silver prices gained almost 55% in the fourth quarter of this year. For the third quarter, silver gained nearly 18%. For the second quarter, silver ended higher by 3.1%. For the first quarter of this year, silver rose by 3%. In FY 2010, silver ended higher by 83.7%.

In the currency market on Monday, the dollar advanced against several key currencies, namely the yen, euro, and pound. Strength in the greenback helped the dollar index climb as much as 0.7% before that gain was dashed. Still, the dollar managed to fend off efforts to take it into the red; it was up about 0.3% as of the close of trade.

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.

The Institute for Supply Management reported on Monday, 03 January 2011 that its index of factory activity rose to 57.0% in December from 56.6% the prior month — the highest level since last May. Readings over 50% indicate that more firms are growing than contracting. Market was expecting the figure to be 57.5.

Among other data, The Commerce Department in US reported on Monday, 03 January 2011 that outlays for U.S. construction projects rose for the third straight month in November. Construction spending rose 0.4%, slightly higher than economists' expectations of about a 0.2% gain. Spending on public-sector and private projects increased in November. Outlays are still down 6% compared with a year earlier.

At the MCX, gold prices for February delivery closed lower by Rs 38 (0.2%) at Rs 20,788 per ten grams. Prices rose to a high of Rs 20,838 per 10 grams and fell to a low of Rs 20,735 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 320 (0.7%) higher at Rs 46,584/Kg. Prices opened at Rs 46,274/kg and rose to a high of Rs 46,774/Kg during the day's trading.