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Tuesday, October 28, 2008
Gold manages to end higher
Precious metal price end mixed as silver drops again
Gold prices managed to end higher on Monday, 27 October, 2008 for the second straight day. This was the second time the yellow metal ended higher in the last twelve sessions. Gold managed to climb up as US market managed to inch up in the green in the noon hours. But silver prices dropped today.
Earlier last week, gold prices had slipped to lowest levels in thirteen months as it fell below $700 level. A strong dollar was the main reason behind this. 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. Losses in equity markets had also forced traders to sell gold. Since past couple of weeks, precious metals, mainly gold, had dropped as traders tried to gain back some of the money that had lost in other markets.
On Monday, Comex Gold for December delivery rose $12.6 (1.7%) to close at $742.9 an ounce on the New York Mercantile Exchange. Prices fell to a low of $707 earlier during the day. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (29%) since then. Last week, gold prices ended lower by 7.3%.
This year, gold prices have lost 11.6% till date. The dollar index has gained 10.2% this year. For the third quarter ended September, 2008, gold prices ended lower by 5.1%. It was the first quarterly loss for the yellow metal since the second quarter in FY 2007. Prior to that, the yellow metal ended second quarter with a marginal gain of 0.7%. For first quarter prices gained 10.7%.
On Monday, Comex silver futures for December delivery fell marginally by 10 cents (1.1%) to $9.195 an ounce. Last week, silver fell 0.4%. Till date, silver has lost 38% this year. Silver had ended month and quarter of September 2008 with a loss of 10%. For the second quarter, it had gained a paltry 1.4%. Silver had gained 16% in Q1. The metal also had gained for seven straight years.
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. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies. Gold has traditionally been used as a safe-haven asset against rising inflation. Investor sentiments are boosted by the fact that gold and silver are alternate sources of good investment in the face of declining dollar and rising energy prices and vice versa.
In the currency market on Monday, the U.S. dollar surged against the euro and the British pound Monday, but lost ground against the resurgent Japanese currency, as safe-haven flows trumped a Group of Seven warning about "excessive" yen volatility. The U.S. Dollar Index, the weighted basket that includes the euro and yen, rose as much as 1.6% today, before paring gains.
In the crude market on Monday, crude for December delivery fell 93 cents, or 1.4%, to end at $63.22 a barrel on the New York Mercantile Exchange.
Earlier this year, the weakening dollar and higher global demand for raw materials had led to records this year for commodities including gold. Gold reached a record in March as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. The Federal Reserve halted cuts to its target bank lending rate in April, after slicing it in seven steps to 1.5% currently from 5.25% in September, 2007. But there are chances that Fed might curtail the rate to 1% in its next meeting.
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 December delivery closed higher by Rs 120 (1%) at Rs 12,042 per 10 grams. Prices rose to a high of Rs 12,080 per 10 grams and fell to a low of Rs 11,586 per 10 grams during the day’s trading.
At the MCX, silver prices for December delivery closed Rs 307 (1.8%) lower at Rs 16,448/Kg. Prices opened at Rs 16,790/kg and fell to a low of Rs 16,111/Kg during the day’s trading.
Crude coughs up a dollar
Oil continues to lose as demand concerns worry traders
Crude prices rose fell by almost a dollar on Monday, 27 October, 2008 and closed below the $63/barrel level as traders continued to doubt about energy demand in the coming months. Last week, OPEC had decided on a production cut. The decision, however, failed to perk up crude prices as traders still remained extremely worried that an ongoing recession will curtail demand for energy in the coming months.
Crude-oil futures for light sweet crude for December delivery closed at $63.22/barrel (lower by $0.93 or 1.4%) on the New York Mercantile Exchange. Prices earlier touched a high of $65.77. Prices reached a high of $147 on 11 July but have dropped almost 57% since then. Last week, prices dropped by 11% after shedding 7.5% in the week prior to that. On a yearly basis, crude price is lower by 31%. For this year in 2008, crude prices have dropped 38%.
OPEC officials decided last Friday at its meeting at Vienna that OPEC will pare production by 1.5 million barrels a day w.e.f 1 November, 2008. The official production quota is currently 28.8 million barrels, and it will be cut by 1.5 million in November.
Last week, the Centre for Global Energy Studies said that global oil demand may fall for the first time in 15 years in 2008 and stagnate next year.
Earlier this month, in the latest monthly prediction, the Organization of the Petroleum Exporting Countries said that global oil consumption will grow 550,000 barrels a day this year compared with a year ago, down 330,000 barrels from last month's forecast. Total consumption will stand at 86.5 million barrels a day. For the next year, demand will grow 800,000 barrels a day, down 100,000 barrels from OPEC's September prediction.
The Energy Information Administration, the statistics arm of the U.S. Energy Department, also lowered its growth outlook for this year's global oil consumption by 350,000 barrels from a month ago.
For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.
Against this background, November reformulated gasoline fell 0.1% to close at $1.4769 per gallon. November heating oil ended at $1.9144 per gallon, down 1.6%.
Natural gas prices also continued to move lower. November natural-gas futures surrendered 11.8 cents, or 1.9%, to finish at $6.121 per million British thermal units.
At the MCX, crude oil for November delivery closed at Rs 3,311/barrel, lower by Rs 3 (0.09%) against previous day’s close. Natural gas for November delivery closed at Rs 343.9/mmbtu, lower by Rs 2.1/mmbtu (0.6%).
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