Gold heads for seventh straight annual gains

Boosted by dollar weakness and rising crude, gold crosses $830 mark once again

Precious metals ended higher today, Wednesday, 26 December, 2007 after the dollar slipped against almost all its rival currencies. Gold crossed the $830/ounce mark once again and marked the highest price in almost a month. 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 rose $13 (1.6%) to close at $829.5 an ounce on the New York Mercantile Exchange today. Prices touched $830.2/ounce during intra day trading. Last week, the yellow metal gained $17.4/ounce (2.2%). On, 7 November, prices had touched $848/ounce. It was the highest price after a record $873 on 21 January, 1980.

Comex Silver futures for March delivery rose 17.5 cents (1.2%) to $14.835 an ounce. Prices touched 26 year high on 7 November, after reaching $16.275. The metal has climbed 15% this year.

Gold is headed for a seventh straight annual gain. In 2006, silver had jumped 46% while gold gained 23%.

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.

In the currency market today, the dollar index, which tracks the value of the greenback against a basket of other currencies, fell for a third day, down 0.6% to 77.14.

In the energy market, oil prices ended substantially higher after crossing the $96/barrel mark on supply concerns and Turkish airstrikes.

Gold had climbed 30% this year till date as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. Dollar is still 9% down against the euro this year.

The Fed has reduced overnight lending rates by 1% in FY 2007. On 11 December, Federal Reserve lowered the federal funds rate by a quarter-point to 4.25%. The Fed also lowered its discount rate, the interest it charges on direct loans it makes to banks, by a quarter-point to 4.75%.

Before 11 December, Federal Reserve had cut the fed funds rate by a quarter-point to 4.50% on 31 October, 2007. Prior to that, Federal Reserve had cut interest rates by half percentage point on 19 September, 2007. With these interest rate cuts, dollar has been tumbling down. Market anticipates that there will be more rate cut in the coming year.