Gold and silver prices drop as crude oil slips and dollar hardens against euro
After striking six consecutive record highs, gold prices closed a bit lower today, Tuesday, 16 January, 2008. Prices eased today after the greenback rose against its rivals, mainly the euro and also after crude prices fell by more than $2/barrel. Silver prices also slipped today.
Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.
Comex Gold for February delivery today fell $0.80 (0.1%) to close at $902.6 an ounce on the New York Mercantile Exchange. During intraday trading prices rose as high as $916.1/ounce, but the slipped. This year, prices have gained 7.5% till date.
Before today, gold had struck consecutive record highs for six consecutive sessions. Prices closed above the $900 mark for the first time yesterday.
Comex Silver futures for March delivery fell 12.5cents (0.8%) to $16.3 an ounce. Silver has gained 9% in 2008. The metal had climbed 15.5% in FY 2007. The metal also has gained for seven straight years.
Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
In the currency market today, the dollar index, which tracks the value of the greenback against other major currencies, fell to 75.2, the lowest level in more than six weeks. Then the dollar climbed against the euro after earlier trading near record lows.
In the energy market today crude oil fell by $2.22 (2.4%) to close at $91.98 a barrel. Prices fell after a U.S. government report showed that retail sales unexpectedly declined last month and Saudi Arabia's oil minister said OPEC is ready to increase production.
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. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.
Last week, Federal Reserve Chairman, Ben Bernanke said that U.S. central bank is struggling with a deteriorating economy brought on by a struggling housing market, high energy prices and a weaker stock market. To help situation from worsening further, he hinted that more interest rate cuts are on the way.
Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record.
The Fed reduced federal funds rate three times in FY 2007. The current interest rate stands at 4.5%. The Fed also lowered its discount rate twice, the interest it charges on direct loans it makes to banks, and currently it stands at 4.75%. With these interest rate cuts, dollar has been tumbling down.
At the MCX, gold prices for February delivery closed lower by Rs 37 (0.32%) at Rs 11,371 per 10 grams. Prices rose to a high of Rs 11,533 per 10 grams and fell to a low of Rs 11,297 per 10 grams during the day’s trading.
At the MCX, silver prices for March delivery closed Rs 139 (0.7%) higher at Rs 20,897/Kg. Prices opened at Rs 21,150/kg and fell to a low of Rs 20,645/Kg during the day’s trading.