Bullion metals shine

Inflation concerns due to stimulus hope take precious metals higher

Bullion metal prices went up on Tuesday, 10 February, 2009. Anticipation that the bailout plan for banks and stimulus package for overall economy will increase inflation increased the appeal of the precious metals as alternate investment. Silver prices also gained today. Prices rose despite a strong dollar.

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 silver prices dropped.

On Tuesday, Comex Gold for February delivery rose $21.4 (2.4%) to close at $913.7 an ounce on the New York Mercantile Exchange. Last week, gold prices ended down by 1.5%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 3.4%.

On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped significantly (14%) since then.

On Tuesday, Comex silver futures for March delivery rose 30 cents (2.3%) to end at $13.13 an ounce. Year to date, silver has climbed 16% this year. For 2008, silver had lost 24%.

In recent developments in Washington today, Treasury Secretary Timothy Geithner said in a speech that the government may spend as much as $1 trillion to rescue banks. The Senate passed an $838 billion stimulus bill, moving it toward final congressional action. He also said that the Treasury and other federal agencies will partner with private capital to create a fund for troubled bank assets that could produce up to $1 trillion in financing capacity.

In the currency market today, the dollar index ended higher by 0.6%.

In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.

Last year, the weakening dollar and higher global demand for raw materials had led to records for commodities including gold. Gold reached a record in March 2008 as a U.S. housing slump and credit crisis spurred the Federal Reserve to slash borrowing costs. In the last move, the Federal Reserve has cuts its target bank lending rate to 0.25% from 5.25% in September, 2007. The Fed did it in nine steps.

Prior to 2008, 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 April delivery closed higher by Rs 284 (2.03%) at Rs 14,222 per 10 grams. Prices rose to a high of Rs 14,310 per 10 grams and fell to a low of Rs 13,927 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 284 (1.4%) higher at Rs 20,548/Kg. Prices opened at Rs 20,275/kg and rose to a high of Rs 20,649/Kg during the day's trading.