Bullion metals turn dull

A strong dollar takes away some of the glitter from precious metals

Precious metals ended lower today, Wednesday, 07 May, 2008. The strong dollar was the main reason for this. Today’s fall for precious metals came after three straight days of rise. Prices fell even though crude touched a fresh new high at $123/barrel. Silver prices also fell for the day.

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. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Comex Gold for June delivery fell $6.5 (0.7%) to close at $871.2 ounce on the New York Mercantile Exchange. Last week, gold prices lost $32 (3.6%) against previous week’s close. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce.

This year, gold prices have gained 4.3% for the till date against a 9% drop for the dollar against the euro. For April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.

Comex Silver futures for July delivery fell 16 cents (0.8%) to $16.7 an ounce. Silver has gained 12.2% in 2008 till date. For April, it closed lower by 5.5%. Silver gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

On the currency markets today, the dollar rose as downbeat U.S. home sales data failed to offset the effects of weak U.K. and euro-zone data earlier. The dollar index, which measures the greenback against a basket of six major currencies, was at 73.52 as against last day’s 73.015.

In the energy market today, crude-oil futures touched a fresh record above $123 Wednesday following a U.S. government report which showed that crude supplies climbed for a third week in a row, but that refinery capacity declined.

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.

At the MCX, gold prices for June delivery closed higher by Rs 28 (0.24%) at Rs 11,628 per 10 grams. Prices rose to a high of Rs 11,660 per 10 grams and fell to a low of Rs 11,535 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 50 (0.22%) lower at Rs 22,542/Kg. Prices opened at Rs 22,656/kg and fell to a low of Rs 22,301/Kg during the day’s trading.