Precious metals drop for third straight day

Gold prices give up $19 in last three sessions as dollar goes up

Precious metals ended modestly lower once again on Wednesday, 14 May, 2008. Dollar strengthening up against its rivals was the main reason behind this. The dollar was strong today following report that US consumer cost rose less than expected in April, 2008.

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. 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.

Comex Gold for June delivery fell $3.1 (0.3%) to close at $866.5 ounce on the New York Mercantile Exchange. With today’s drop, the yellow metal lost $19 in the last three sessions. Last week, gold prices ended higher by $3.2 ($27.8). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Prices have dropped by 16% since then.

This year, gold prices have gained 3.4% for the till date against a 8% 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 21.5 cents (1.3%) to $16.613 an ounce. Silver has gained 11% 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.

At the currency markets on Wednesday, the dollar posted healthy gains against major rivals after a rally in stocks offset a calmer-than-anticipated reading on U.S. inflation. The euro resumed its slide vs. the dollar.

The Labor Department reported today that the consumer-price index rose 3.9% in the 12 months ended April. Excluding volatile food and energy prices, the core consumer price index increased 0.1%, against an expected 0.2%.

In the crude market, crude prices fell today and closed below $125/barrel after the government report showed that U.S. crude-oil supplies rose less than expected.