Precious metals tumble

Prices continue to fall as dollar strengthens

Precious metals ended considerably lower once again on Wednesday, 05 January 2011 at Comex. Prices fell as the dollar witnessed considerable gains and traders took to profit taking after the holiday season.



On Wednesday, gold for February delivery fell by $5.1 (0.4%) ending at $1,373.7 an ounce on the New York Mercantile Exchange. During intra day trading, prices fell to a low of $1,364. Yesterday, gold witnessed biggest one-day drop for gold in three weeks time. Last week, gold ended higher by 3%.

For 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.

On Wednesday, December Comex silver futures ended lower by $31 cents (1%) at $29.2. 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 Wednesday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies rose by 1%.

The Institute for Supply Management reported on Wednesday, 05 January 2011 that its non-manufacturing index rose to 57.1% from 55.0% in November, marking the 12th month in a row the gauge has been above the 50%.

It was the strongest reading since May 2006, and the reading shows that the services sector overtook manufacturing in December, the first time in 18 months, as retailers enjoyed a strong Christmas selling season. Real estate, rental and leasing, and information were also among the 14 industries showing growth. The business activity subcomponent jumped 6.5 points to 63.5%, and the new orders subcomponent rose 5.3% to 63%.

In the latest report, HSBC raised its 2011 gold average price forecast to $1,450 an ounce from a previously forecast $1,425 an ounce. The bank sees gold at $1,300 an ounce in 2012, up from $1,275 an ounce earlier. HSBC raised its 2011 average price estimate for silver to $26 an ounce, from $20 an ounce. Silver in 2012 is likely to average $20 an ounce, from $17.50 an ounce.

At the MCX, gold prices for February delivery closed higher by Rs 17 (0.08%) at Rs 20,466 per ten grams. Prices rose to a high of Rs 20,517 per 10 grams and fell to a low of Rs 20,376 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 210 (0.5%) lower at Rs 44,856/Kg. Prices opened at Rs 45,188/kg and fell to a low of Rs 44,070/Kg during the day's trading.