Precious metals shine

Prices register sharp gains as dollar drops to multi month low levels

Precious metals ended with substantial gains on Tuesday, 01 February 2011 at Comex. Prices rose as the dollar slipped to multi month lows against competing currencies thereby increasing the appeal of precious metals as an alternate investment. The dollar lost ground today due to strong economic data.



On Tuesday, gold for April delivery ended higher by $5.8 (0.4%) at $1,340.3 mark on the New York Mercantile Exchange. Last week, gold ended almost flat. Gold lost 6.1% in January 2011. For the year, gold has dropped by 6.5% 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 Tuesday, March Comex silver futures ended higher by $0.34 (1.2%) at $28.51. Prices gained 1.8% last week. Prices have shed 9% this year in January. For the year till date, silver has shed 7.8%.

In FY 2010, silver ended higher by 83.7%.

In the currency market on Tuesday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies, dropped by 0.9%.

Among economic data expected for the day, the Institute of Supply Management said on Tuesday that its index of manufacturing activity rose the most since May 2004. The ISM index rose to 60.8% in January from 58.5% in December.

A day before, the Institute for Supply Management-Chicago said its gauge of business activity in the Chicago area rose in December, indicating another month of expansion, and at a faster pace. The Chicago PMI came in at 68.8 for December. That represents its best reading since 1988.

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.

At the MCX, gold prices for February delivery closed lower by Rs 39 (0.2%) at Rs 20,131 per ten grams. Prices rose to a high of Rs 20,230 per 10 grams and fell to a low of Rs 19,975 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 141 (0.32%) higher at Rs 43,781/Kg. Prices opened at Rs 43,643/kg and rose to a high of Rs 43,880/Kg during the day's trading.