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Thursday, May 21, 2009
Slide may continue
The south-bound trend in the market is likely to continue on the back of a weak global indices. However raise in FIIs may help the market sentiment. Among the key domestic indices, the Nifty may test 4240 on the downside while on the upside the index could test higher levels of 4310, while the Sensex could test higher levels of 14200 and has a likely support at 13900.
US indices faltered erasing earlier gains, as the Federal Reserve's dour economic outlook curbed optimism about the health of U.S. banks. While the Dow Jones dropped 53 points to close at 8422, the Nasdaq ended 7 points lower at 1728.
Barring few select floats, most of the Indian ADRs posted loss on the US bourses. Infosys, Satyam, Wipro, Tata Motors, ICICI Bank, HDFC Bank and VSNL lost nearly 0.57-3% each, Among the select gainers Rediff gained the most and moved up over 9% while MTNL and Patni Computers ended with decent gains.
Crude oil prices inched lower, with the Nymex light crude oil for July delivery moved up by $1.94 at $62.04 a barrel and in the commodity segment, the Comex gold for June 09 series gained $10.70 to settle at $937.40 an ounce.
Daily trend of FII/MF investment in equities
On May 19 2009, FIIs were net buyers of stocks to the tune of Rs5045 crore (purchases worth Rs12579 crore and sales of Rs7534 crore) while domestic mutual funds were net sellers of stocks to the tune of Rs619 crore (purchases worth Rs7975 crore and sales of Rs8594 crore).
A weak finish to a strong start for US stocks
Minutes of last FOMC meeting take a toll on stocks
US stocks ended modestly lower on Wednesday, 20 May, 2009. US stocks managed a very strong start on Wednesday, 20 May, 2009. But by noon, stocks gave up most of their gains and were trading flat and at the end, they registered losses. It was the financial sector that gave market a solid start in the morning. But with lack of any specific news, the sector failed to continue with its momentum. Earning reports from Target and H-P checked in line with expectations. But losses picked up momentum after last Federal Open Market Committee's meeting minutes hit the wires.
Weakness in the financial sector was the main reason behind today's loss. The sector failed to lend any substantial support to the market in the course of the day. But the same sector had managed to make market make a strong start earlier.
The Dow Jones Industrial Average ended lower by 52.8 points at 8,422. The Nasdaq Composite Index, ended lower by 6.7 points at 1,727. S&P 500 ended lower by 4.6 points at 903.7. Market had opened 101 points higher earlier during the day.
Strength in the financial sector was the main reason behind today's strong open. Bank of America concluded its previously announced common stock offering, which brought in nearly $13.5 billion through the issuance of stock carrying an average price of $10.77 per share. This boosted stocks.
Home improvement retailer, Target announced its latest earnings results ahead of the opening bell today. The company reported better-than-expected earnings this morning.
In other earnings news, Hewlett-Packard posted in-line second quarter earnings and an in-line forecast for its third fiscal quarter. HP also reaffirmed an upside outlook for fiscal 2009. But the stock failed to drive the tech sector higher. Deere announced better-than-expected earnings.
The minutes from the April FOMC meeting indicated today that participants project a contraction for real GDP this year, and that committee members believe the near-term economic outlook has weakened relative to the projections made in January. However, a recovery in sales and production is still expected to begin in the second half of this year.
Crude oil prices ended higher on Wednesday, 20 May, 2009 after energy department's weekly inventory report showed more than expected drop in crude inventories for last week. The subdued dollar also led to rising crude price. On Wednesday, crude-oil futures for light sweet crude for June delivery closed at $62.04/barrel (higher by $1.94 or 3.2%) on the New York Mercantile Exchange. It was the highest level for crude in six months.
EIA reported today that crude inventories decreased by 2.1 million barrels in the week ended 15 May, 2009. Market was expecting a decline of 1.5 million barrels. Despite the decline, crude inventories, at 368.5 million barrels, were still above the upper boundary of the average range for this time of year. Refineries, meanwhile, operated at 81.8% of their operable capacity last week, slightly higher than a week ago.
In the currency market on Wednesday, the U.S. dollar index, fell more than 1%. The dollar dropped against euro for the third straight session.
Earnings and economic reports will be in focus tomorrow. Among economic report, weekly jobless claims data are due at 8:30 AM ET tomorrow morning. Leading economic indicators for April are due at 10:00 AM ET, as is the Philadelphia Fed Index.
Market may extend losses
The key benchmark indices may extend yesterday (20 May 2009)'s losses as investors may resort to profit booking after the recent solid surge. The weak global cues may further weigh on the sentiment.
Asian stocks retreated today, dragging the MSCI Asia Pacific Index from a seven-month high, as the stronger yen diminished earnings prospects in Japan and the U.S. Federal Reserve projected a deeper recession. Key benchmark indices in China, Hong Kong, Japan, Singapore, South Korea and Taiwan fell by between 0.05% to 1.61%.
Singapore's economy shrank less than initially estimated in the quarter ended March 2009, signaling the nation may be past the worst of its deepest recession since 1965. Singapore's gross domestic product declined 14.6% in quarter ended March 2009 over quarter ended March 2008 after shrinking 16.4% between October and December 2008.
The US markets ended lower on Wednesday 20 May 2009 as banking and technology stocks pulled back and comments from the US Federal Reserve dampened the market's optimism.At the closing bell, the Dow Jones Industrial Average shed 52.81 points or 0.62%, to 8,422.04. The S&P 500 lost 4.66 points or 0.51%, to 903.47 and the Nasdaq Composite fell 6.70 points or 0.39%, to 1,727.84. In fresh quarterly forecasts, the Fed projected the US economy would contract between 1.3 % and 2 % this year, with the unemployment rate rising to between 9.2 % and 9.6 %.
Minutes of the Fed's 28-29 April 2009 meeting released yesterday showed some policy makers said “a further increase” in the total amount of asset purchases may be needed to speed a U.S. economic recovery. Fed governors and district-bank presidents foresaw a deeper contraction this year and a weaker recovery next year.
Back home, inflation data for the year through 9 May 2009 will be announced by the government today. Inflation based on the wholesale price index rose 0.48% in the year through 2 May 2009, lower than previous week's annual rise of 0.7%
In the political news, the Congress party-led coalition has the support of 322 lawmakers, Prime Minister-elect Manmohan Singh said on Wednesday, giving it a clear majority in a new government. Singh and Congress party chief Sonia Gandhi met President Pratibha Patil to seek approval to form a new government. President Pratibha Devisingh Patil on Wednesday appointed Manmohan Singh Prime Minister and invited him to name his Council of Ministers.
The invitation to form the government came after Dr. Singh and Congress president Sonia Gandhi staked claim with letters of support from 274 members of the 15th Lok Sabha. In addition, the Bahujan Samaj Party, the Samajwadi Party and the Rashtriya Janata Dal sent letters of support for a Manmohan Singh-led government directly to the President, taking the support base to 322.
Dr Singh, the 76-year-old economist-turned-politician, will be sworn in as Prime Minster of India for the second term on Friday 22 May 2009, a day after the 18th death anniversary of Rajiv Gandhi. Dr Singh was renominated as Congress Parliamentary Party leader on Tuesday (19 May 2009).
Meanwhile, as per media reports key government departments have drawn up a slew of proposals to populate an ambitious reform agenda for the first 100 days of Dr Singh's second term as the PM, aimed at giving economic growth a leg-up. PM has already prepared the broad contours of an economic revival plan to be taken up soon after the new government is formed, reports suggest While recommendations to revive growth and ease the credit squeeze are likely to find a place in the plan, tax proposals are expected to be taken up as budget recommendations. The telecom ministry has prioritised the much delayed auction of 3G airwaves and WiMAX spectrum. It has also prioritised introduction of a new spectrum policy.
The petroleum ministry is aiming for increased domestic output and a targetted-delivery system for the poor
The new government is also likely to pursue disinvestment of state-run undertakings, reports suggest. The disinvestment department under the finance ministry is reportedly working on expanding the list of companies in which the government could reduce its stake. Among these are Power Grid Corporation, Cochin Shipyard, and Rashtriya Ispat Nigam.
The Congress-led UPA defied predictions of a tight election and was only about 11 seats short of an majority from the 543 seats at stake in the recently concluded Lok Sabha election. Congress' alliance took 261 seats, sweeping aside its nearest rival, the bloc led by the Hindu-nationalist Bharatiya Janata Party (BJP), which won only 159 combined. Congress, which alone won 205 seats, needs a handful of partners to reach the 272 seats needed to take power, and is expected to seek the support of more smaller parties or independents.
Financial sector reforms are likely to get a push in the coming days, which were relegated to the back seat due to persistent opposition from the Left parties.
Meanwhile, the stock market will keep a close eye on the allocation of portfolios in the new government. It remains to be seen who gets the key ministries viz. power, transport and education sectors likely to be decided at the crucial UPA meet scheduled to be held in New Delhi today. Analysts say growth in these three sectors are key for India to achieve strong economic growth. If those seen as strong performers are given charge of these three ministries, the market may extend gains.
As per reports, Congress's strong showing in election means reformers will almost certainly be named to key ministerial portfolios viz. finance, trade, defence and foreign affairs. The ministers should be named this week. Fresh reformist faces may also join the cabinet for the first time, including Rahul Gandhi, heir to the powerful Gandhi dynasty and seen as pushing a new generation of leaders into the Congress.
Among the contenders for the post of the finance minister are C Rangarajan, an economic adviser to the prime minister, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, Trade Minister Kamal Nath, and External Affairs Minister Pranab Mukherjee. As per market talks, P Chidambaram could retain his home portfolio.
This week so far, The BSE 30-share Sensex lost 241.37 points or 1.69% to 14,060.66 on Wednesday 20 May 2009 on profit taking. The BSE Sensex had crawled up marginally on Tuesday, 19 May 2009 extending gains for the second straight day after Indian stocks had witnessed a historic rally on Monday, 18 May 2009, when the key indices viz. the Sensex and the Nifty surged more than 17% each on hopes a new stable government will be able to push reforms.
The Sensex has risen 4413.35 points or 45.74% in calendar year 2009. From a 3-year closing low of 8,160.40 on 9 March 2009, the Sensex has surged 5,900.26 points or 72.3%.
Foreign funds turned sellers after buying aggressively in Indian stocks. As per the provisional figures on NSE, the foreign institutional investors (FIIs) sold shares worth a net Rs 985.53 crore on Wednesday, 20 May 2009 and domestic funds bought shares worth Rs 4.99 crore. FII inflow in May 2009 totaled Rs 15,368.80 crore (till 19 May 2009) while their inflow in calendar year 2009 totaled Rs 15,725.30 crore.
Daily News Roundup - May 21 2009
Reliance Industries has received the government go-ahead to sign agreements with firms supplying the much-needed gas to households and car owners in major cities. (ET)
ONGC and Oil India provide support of Rs9.4bn in form of subsidy. (BL)
Tata Steel rules out stake sale in Teesside plant. (FE)
Bharti-Wal-Mart will open its first cash and carry store in India in Amristar, Punjab next week. (BS)
Bharti Airtel plans to open 1600 Airtel service centres in Tamil Nadu by end of this month followed by another 4000 such centres by end of March ‘10. (FE)
PGCIL is in talks with atleast 4 US companies to jointly bid for transmission contracts there. (Mint)
Grupo Mexico has bid US$1.6bn for Asarco to counter Sterlite’s offer. (BS)
TCS expects its Asia-Pacific business to grow faster than the overall company. (BS)
Tata Motors is understood to have begun refunding dealers across the country for unsold Nano booking forms. (ET)
Tata Motors has raised Rs42bn through the issue of secured non-convertible debentures (NCD) in the local market. (ET)
Punjab National Bank to sell 26% stake in housing finance arm to Dawnay Day. (BL)
Reliance Power has bagged 4 hydro power projects of 2.5GW capacity worth over Rs180bn. (BS)
Reliance Infrastructure has achieved the financial closure of the Western Region System Strengthening power transmission project and a consortium of banks led by SBI will fund Rs9.7bn as debt. (BS)
Grasim puts its RMC investments plans at rest. (FE)
Sobha Developers and Mumbai-based HDIL are considering raising funds through QIP. (ET)
Aditya Birla Group may sell a stake in its loss-making retail venture to private equity firms Warburg Pincus, KKR and Goldman Sachs. (ET)
Tech Mahindra eyes 50% stake of VGE in Satyam’s JV. (FE)
Unitech has sold an office space in Saket, New Delhi, for Rs5bn as part of a plan to raise money. (BS)
Telenor hikes stake in Unitech Wireless to 49%. (BL)
HCL Technologies has entered into outsourcing services engagement with MTV Networks. (BS)
Jain Irrigation bags Rs650mn order from Balh Valley Medium Irrigation project in Himachal Pradesh. (BL)
Pfizer Inc has inked pact with Claris Lifesciences to market off patent injectibles. (BS)
Government plans to divest 10% in BSNL once the new minister assumes office. (BS)
BSNL may reject Huawei’s bid for the GSM line order for the western telecom circles. (BS)
KS Oil to get Rs4.5bn funding from PE investors, GDR and promoter funding for development, expansion and acquisition of agricultural assets in South East Asia. (BL)
Surya Roshni to complete its Rs6bn expansion by fiscal end. (BL)
Prolec GE announced that it has enhanced its stake in Indo Tech Transformers to 74.35%. (BL)
Texmaco bags 3,455 wagon orders from Railways. (BL)
Swan Telecom is set to outsource its IT and backoffice functions to Tech Mahindra and will award a network equipment deal to Ericsson. (ET)
NHPC, MMTC, BSNL and Oil India are some of the public sector firms that may be upgraded to navratna status ahead of their IPOs. (ET)
MTNL executives have called off their strike. (BS)
Merck board has approved Rs1.6bn buyback offer. (BS)
Air India board plans to raise Rs30bn to meet its working capital requirements among others. (BS)
MMRDA has invited pre-qualification bids for construction of the tallest building with 101 floors. (BS)
Commerce ministry has initiated steps to reduce the time taken to develop SEZ’s by simplifying procedures to get tax free industrial enclaves notified. (BS)
India may scrap the ban on rice exports after record harvest and increased stockpiles. (BS)
Monsoon has set over the Andaman Sea and part of south Bay of Bengal, right on schedule. (BS)
The new petroleum minister plans to freeing retail petroleum prices and set up transnational gas pipelines. (BS)
India’s import of sensitive products rose by 27.7% in fiscal ended March ’09. (FE)
Banks have lent Rs58.8bn to companies, individuals and other businesses during the fortnight ended May 8, according to the latest figures released by the RBI. (ET)
Demand for gold in India declined by a whopping 83% to 17.7 tons in the January-March period from the year-ago period. (ET)
A government panel is opposing a safeguard measure aimed at preventing owners of new telecom licences from making windfall profits. (ET)
Drizzles and fizzles on the Street!
I think it's how someone becomes good at anything. You practice when nobody's watching - in the heat of the summer or even when its drizzling out.
The streets of Mumbai saw some drizzling even as the heat in the market appears to be slowly fizzling. Though the convincing win for the UPA has been greeted with cheers, the road to recovery will not be a smooth one. It will take some doing for the new regime to engineer the economic turnaround. A good monsoon will surely help with it will need some heavy rain of reforms in the UPA’s new reign.
Global economic conditions remain precarious. The Fed expects a full recovery in the US to be 5-6 years away. Singapore’s economy shrank by 10% in the first quarter. Japan’s economy contracted at a record pace of 15.2% in Q1. The yen has risen to a two-month high against the dollar on speculation that a recession in the US is far from over.
Today, we expect another cautious opening and sideways trading in the key indices. Though the broader market was on fire, one should be wary of the rally in the small-and mid-caps.
Key Results Today: Bajaj Auto, Bajaj Holding, Federal Bank, Gammon Infra, Inox, IRB Infra, Nitin Fire, Unichem Labs and Varun Shipping.
FIIs were net sellers in the cash segment on Wednesday at Rs9.85bn while the local institutions were net buyers of Rs49.9mn. In the F&O segment, the foreign funds were net sellers at Rs34.6bn. On Tuesday, FIIs were net buyers at Rs50.45bn in the cash segment. Mutual Funds were net sellers at Rs17.2bn on the same day.
US stocks ended lower on Wednesday, erasing earlier gains on the back of the Federal Reserve's grim economic. The Dow Jones Industrial Average fell about 50 points, or 0.6%, after gaining more than 100 points early in the session. The S&P 500 index fell 0.5% while the Nasdaq Composite lost 0.4%.
Stocks surged in early trading after Bank of America's $13.5 billion stock sale raised bets that the financial sector is stabilising. Energy stocks also rallied as oil prices rose to a 6-month high. But the market slumped in the final hour of trading after the Fed reduced its growth targets and raised unemployment expectations. The central bank also said it expects a recovery in sales and production to begin during the second half of the year.
Still, the overall tone remains relatively bullish. The CBOE Volatility Index, or VIX, which is considered a gauge of investor fear, fell further after ending at its lowest level since September on Tuesday. The VIX added 0.8% to 29.03. The gauge slipped below 30 for the first time in eight months a day earlier. It was at 25.66 on Sept. 12, the session before Lehman Brothers Holdings Inc. filed for bankruptcy.
According to the minutes from its last policy meeting, the Fed said it expects 2009 GDP to shrink between 1.3% and 2%. That compares with January's projection for a decline between 0.5% and 1.3%. The Fed's staff now expects the unemployment rate to rise to between 9.2% and 9.6%. In January, the jobless rate was forecast to rise to between 8.5% and 8.8%, but the unemployment rate topped that in April, hitting 8.9%. But the Fed also pointed to signs the pace of the recession is easing.
Treasury Secretary Tim Geithner told the Senate Banking Committee that stress-tested banks have set out to raise $56 billion to plug holes in their books. Geithner also said there are "encouraging signs the financial system is starting to heal." But he warned that "we're only beginning to lay the foundation for economic recovery."
After the close on Tuesday, Bank of America said it has raised $13.47 billion through a sale of stocks. The bank has issued 1.25 billion shares since Friday at an average price of $10.77. BofA, whose shares rose more than 2%, needs to raise $33.9 billion to meet the government's stress test requirements.
Congress passed a bill that imposes greater restrictions on the credit card industry for raising fees and interest rates. The approval came despite strong objections by banking industry advocates, who say it could result in tightened credit to Americans.
Separately, President Obama said the financial markets have improved recently, but he cautioned that unemployment will remain elevated for some time. The president's remarks came during a public meeting of his special economic advisory group, which is led by former Fed chief Paul Volcker.
Also, the Senate's Special Committee on Aging heard testimony that the agency that guarantees the nation's corporate pensions, the Pension Benefit Guaranty Corp., posted a record $33.5 billion deficit in the first half of the current fiscal year.
Retailer Target reported that first-quarter profit fell to 69 cents per share, a 7% decline from 75 cents a year earlier. The results topped analyst expectations of 60 cents per share. Target shares rose more than 2%.
Late on Tuesday, PC maker Hewlett-Packard (HP) reported quarterly results that were in line with Wall Street's estimates. The company also said it would cut 6,400 jobs, or 2% of its workforce. HP shares fell 5%.
Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.19% from 3.24% on Tuesday.
Crude prices rose to a six-month high, settling up $1.94 to $62.04 a barrel, after the government said US supplies of crude oil and gasoline fell more than expected last week. It was the first settlement above $60 for the active-month contract since Nov. 10; Wednesday was the first day that the July contract was the active month.
The dollar slipped versus major international currencies including the euro, the yen and the British pound.
COMEX gold for June delivery rose $10.70 to settle at $937.40 an ounce.
After an overwhelming rally post the Lok Sabha election results, bulls finally took a breather. The slide could be attributed to offloading witnessed in the index heavyweights like DLF, BHEL, ICICI Bank, Bharti Airtel, Sun Pharma and HDFC.
On the other hand, the BSE Mid-Cap index rose 6% and the BSE Small-Cap index surged 8.8%.
Finally, the Sensex slipped 241 points or 1.6% to close at 14,060 after touching a high of 14,406 and a low of 13,976. The index had opened at 14,230 against the previous close of 14,302. The NSE Nifty declined 48 points or 1.1% to shut shop at 4,270.
Among the BSE Sectoral indices BSE Consumer Durable index was the top gainer gaining 9.6%, followed by the BSE Metal index up 5.2%, BSE Auto index up 5%, BSE PSU index up 3% and BSE Pharma index gaining 2%.
On the other hand, the BSE Bankex index was the top loser declining 2.5% and BSE Oil & Gas index down 2%.
Shares of Tata Motors rose over 19% to Rs367 after reports stated that a credit ratings company said the company was planning to sell Rs42bn of debentures. The company plans to issue the debentures in four tranches aiming to refinance a bridge loan taken to buy Jaguar and Land Rover and SBI has guaranteed the debt, added reports.
Shares of Tata Steel rallied by over 13% to Rs371 after reports stated that the company has secured a Rs20bn loan from LIC, aiding the company make additional equity infusions into its UK subsidiary. The scrip touched an intra-day high of Rs378 and a low of Rs324 and recorded volumes of over 8.7mn shares on BSE.
Shares of Airline companies surged to higher altitudes as the operational costs for the domestic airlines’ could drop by as much as 8%, if the dollar continues to depreciate against the rupee. Almost one-third of their operational expenses are denominated in US dollars.
Reports also stated that the civil minister suggested the formation of a civil aviation policy, allowing foreign airlines to acquire up to 49% stake in domestic carriers.
Stocks like Kingfisher Airlines sky rocketed by over 27% to Rs56, Jet Airways rallied by over 14% to Rs278, Spice Jet shot up by over 18% to Rs18.6.
Shares of M&M surged by over 8% to Rs678 after reports stated that the Strike at the company’s Nashik plant has been called off, and it would re-start normal production in 2 days. The scrip touched an intra-day high of Rs684 and a low of Rs603 and recorded volumes of over 0.2mn shares on BSE.
The frenzy of Monday quickly dissipated and the benchmarks ended in the red led by selling in the heavyweights. Markets might further consolidate as traders and investors would be cautious after an overwhelming rally.
Crude at six month highs
More than expected drop in crude inventories spurt prices
Crude oil prices ended higher on Wednesday, 20 May, 2009 after energy department's weekly inventory report showed more than expected drop in crude inventories for last week. The subdued dollar also led to rising crude price.
On Wednesday, crude-oil futures for light sweet crude for June delivery closed at $62.04/barrel (higher by $1.94 or 3.2%) on the New York Mercantile Exchange. It was the highest level for crude in six months. Last week, crude ended lower by 3.9%.
Crude ended April higher by 2.9%. Previously, March trading ended up 10.9%. It rallied 11.3% in the first quarter. For the month of February, crude prices had ended higher by 1.5%.
Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 56% since then. Year to date, in 2009, crude prices are higher by 29.2%. On a yearly basis, crude prices are lower by 41%.
EIA reported today that crude inventories decreased by 2.1 million barrels in the week ended 15 May, 2009. Market was expecting a decline of 1.5 million barrels. Despite the decline, crude inventories, at 368.5 million barrels, were still above the upper boundary of the average range for this time of year. Refineries, meanwhile, operated at 81.8% of their operable capacity last week, slightly higher than a week ago.
Lower refinery production pushed gasoline inventories down by 4.3 million barrels to 204 million barrels, falling below the lower limit of the average range. The EIA also reported distillate stockpiles rose by 600,000 barrels. Motor gasoline demand had averaged about 9.1 million barrels per day over the past four weeks, down by 1.2% from the same period last year. Demand for distillate fuels, which include heating oil and diesel, fell 12%, and jet fuel consumption dropped 9%.
In the currency market on Wednesday, the U.S. dollar index, fell more than 1%. The dollar dropped against euro for the third straight session.
Last week, the International Energy Agency reported on Thursday that it now expects demand to fall 2.6 million barrels a day from 2008 levels. This is 200,000 barrels more than the IEA had projected a month ago. This perhaps kept further rise in crude prices from check.
Also at the Nymex on Wednesday, June-reformulated gasoline ended slightly lower at $1.8095 a gallon, and June heating oil gained 5.45 cents, or 3.7%, to $1.5411 a gallon.
Natural gas for June delivery rose 5.6 cents, or 1.4%, to $3.97 per million British thermal units. The EIA is scheduled to release last week's natural gas inventories on Thursday. Market is expecting a buildup between 93 billion cubic feet to 98 billion cubic feet.
Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
At the MCX, crude oil for June delivery closed at Rs 2,932/barrel, higher by Rs 48 (1.7%) against previous day's close. Natural gas for June delivery closed at Rs 193.4/mmbtu, lower by Rs 1.8/mmbtu (0.9%).
Bullion metals rise further
Prices rise to seven week high as dollar index sheds more than 1%
Precious metals ended higher on Wednesday, 20 May, 2009 at Comex. Prices rose today once again following the depressed dollar. A report by World gold council regarding increased demand for gold in first quarter also spurred prices.
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, Comex Gold for June delivery gained $10.7 (1.2%) to close at $937.4 an ounce on the New York Mercantile Exchange. It was highest price of gold in last seven weeks. Last week, gold ended higher by 1.8%. Year to date, gold prices are higher by 8%.
For the month of April, gold had lost 3.7%, the second consecutive monthly drop. For the month of March, gold fell 2.1%, down for the first month in five. But the metal gained 4.3% in the first quarter. Before March, for the month of February, gold ended higher by 7.4%. For January, 2009, gold had gained 3.9%.
On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (9%) since then.
On Wednesday, Comex silver futures for July delivery gained 15.5 cents (1.1%) at $14.28 an ounce. Year to date, silver has climbed 26.1% this year. For 2008, silver had lost 24%.
In the currency market on Wednesday, the U.S. dollar index, fell more than 1%. The dollar dropped against euro for the third straight session.
In a report issued today, the World Gold Council reported that gold investment demand in the first quarter more than tripled from a year ago to a record level as investors piled into gold exchange-traded funds to hedge against the global economic downturn.
In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.
Last year, the weakening dollar and higher global demand for raw materials had led to records for commodities including gold. Gold reached a record in March 2008 as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the last move, the Federal Reserve has cuts its target bank lending rate to 0.25% from 5.25% in September, 2007. The Fed did it in nine steps.
Prior to 2008, gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Silver had climbed 16% in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
At the MCX, gold prices for June delivery closed higher by Rs 12 (0.08%) at Rs 14,333 per 10 grams. Prices rose to a high of Rs 14,373 per 10 grams and fell to a low of Rs 14,233 per 10 grams during the day's trading.
At the MCX, silver prices for July delivery closed Rs 66 (0.29%) lower at Rs 22,267/Kg. Prices opened at Rs 22,220/kg and fell to a low of Rs 22,206/Kg during the day's trading.
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