Bullion metals fell today, Thursday, 10 April, 2008 after the dollar rose against its counterparts and weighed on the precious metals. Silver prices also fell for the day.
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 today fell $5.7 (0.6%) to close at $931.8 ounce on the New York Mercantile Exchange. Last week, gold prices lost 2.5%. On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. Prices are still 9% lower against that all-time high price.
This year, gold prices have gained 11.5% for the till date against a 8.3% drop for the dollar against the euro. 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 May delivery fell 15.7 cents (0.9%) to $18.043 an ounce. Silver has gained 21.8% in 2008 till date. 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.
In the currency market today, the dollar rose against its major rivals. The euro pulled back as investors took profits, reversing course after the single currency established a new high earlier against the dollar. The dollar index, which tracks the greenback against a basket of currencies, was at 72.170, up by 0.4%.
In the energy market today, crude-oil futures finished a little lower by 76 cents today at $110.11/barrel.
Earlier in the week, bullion metal prices had slipped after The International Monetary Fund's board yesterday approved a plan to sell 403.3 metric tons of gold to narrow the lender's financial shortfall. The proposal still needs the approval of the U.S. Congress. The IMF holds 103.4 million ounces or 3,217 metric tons, of gold.
After weakening in the early part of the year, dollar tried to strengthen after Federal Reserve went through a slew of interest rate cuts. In the last of the series, Fed decided to cut overnight lending rate by 75 bps to 2.25% during third week of March, 2008. Since last September, Fed has axed interest rates six times. Hence, bullion metals along with other metals witnessed intense sell off together as traders parted away with commodities.
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
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