Bullions turn pale as dollar spikes up

Prices settle at lowest levels in one and half months

Precious metals ended substantially lower on Monday, 12 December 2011 at Comex. Prices turned pale as the dollar headed up substantially higher. The dollar turned strong mainly against the euro. U.S. stocks and the euro extended a decline in midday trading on Monday after Fitch Ratings said Europe's debt crisis will continue in 2012 as a comprehensive solution remains elusive, leading to a significant economic downturn there. Prices settled at almost seven-week lows.

Gold for February delivery ended lower by $48.6 or 2.8%, to end at $1,668.2 an ounce on the Comex division of the New York Mercantile Exchange on Monday. Last week, gold lost 2%.



On Monday, silver prices for March delivery shed $1.25 or 3.9% to end at $31. Last week, silver lost 1.3%. It was lowest settlement for silver since mid October. For the month of November, silver lost 4.7%.

Reports from last week's eurozone summit initially generated a positive response, but many traders expressed skepticism in the ability of eurozone members to efficiently implement plans and reach an agreement on those topics that couldn't be brought to a consensus. The concern that the process will simply continue to slog along without producing real results sent yield spreads higher on debt from Italy and Spain, and also spurred concerted selling among the region's major bourses.

In the currency market on Monday, the Dollar Index, which weighs the strength of dollar against basket of six other currencies rose by about 1.1%.

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.

The drop for gold futures also came as traders reportedly highlighted doubts about emerging-market demand, noting last week's data on a sharp drop in China's inflation and India's reduction of its growth target for the financial year ending March 2012.

At the MCX, gold prices for February delivery closed lower by Rs 259 (0.9%) at Rs 28,847 per ten grams. Prices rose to a high of Rs 29,090 per 10 grams and fell to a low of Rs 28,750 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed lower by Rs 790 (1.4%) at Rs 56,143/Kg. Prices opened at Rs 56,817/kg and fell to a low of Rs 55,960/Kg during the day's trading.