Gold and silver shine as the dollar dips
Bullion metal prices ended higher on Wednesday, 25 March, 2009. The weak dollar was responsible for precious metals ending higher today.
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.
On Wednesday, Comex Gold for April delivery rose $12 (1.3%) to close at $935.8 an ounce on the New York Mercantile Exchange. It fell to an intra day low of $916. Last week, the yellow metal ended higher by 2.8%. For the month of February, gold ended higher by 7.4%. For January, 2009, gold had gained 3.9%. Year to date, gold prices are higher by 13.4%.
On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped somewhat (7.9%) since then.
On Wednesday, Comex silver futures for May delivery rose 8 cents (0.3%) to end at $13.437 an ounce. In February, 2009, silver had rose 4.3% after climbing 14% in January. Year to date, silver has climbed 22.9% this year. For 2008, silver had lost 24%.
In the currency market today, the dollar weakened against its rivals. The dollar index, which measures the strength of the dollar against a basket of six currencies fell 0.6%. But then, the dollar pared almost all its losses after Treasury Secretary Timothy Geithner clarified his earlier comments, emphasizing that the dollar remains the world's reserve currency.
Earlier this week, the Treasury Department had unveiled their plan about buying back most of the bank's toxic assets thereby cleaning up their balance sheet to the extent possible. Treasure Secretary Tim Geithner detailed that the Treasury plans to create a series of public-private investments funds to buy $500 billion to $1000 billion in legacy loans and securities. To encourage participation from the private sector, the government is taking on much of the risk and offering subsidies.
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 153 (1.01%) at Rs 15,226 per 10 grams. Prices rose to a high of Rs 15,382 per 10 grams and fell to a low of Rs 14,961 per 10 grams during the day's trading.
At the MCX, silver prices for May delivery closed Rs 86 (0.4%) higher at Rs 22,351/Kg. Prices opened at Rs 22,305/kg and rose to a high of Rs 22,545/Kg during the day's trading.
