Prices register big drop as China hints at tightening policy
Precious metal prices fell on Tuesday, 12 January 2010. Prices
slipped on demand concerns as China signaled a bias to tighten monetary
conditions recently thereby hinting lesser demand for metals and
commodities in coming months.
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 Tuesday, gold for February delivery ended at $1,129.4 an
ounce, lower by $22 (1.9%) an ounce on the New York Mercantile
Exchange. Last week, it had ended higher 3.9%. Year to date in FY 2010,
gold has risen by almost 3.1%.
Last year, after hitting a low at $807.30 per ounce on 15
January 2009, gold futures rallied almost 51% to hit an all-time high
at $1217.40 per ounce during early December of 2009 but fell from those
levels at the end.
On Tuesday, March Comex silver futures ended lower by 44
cents (2.4%) at $18.255 an ounce. Last week, silver ended higher by
9.6%. Year to date in FY 2010, silver has risen by almost 8.4%.
Silver futures had hit a low at $10.42 on 15 January 2009 and
hit a high at $19.30 per ounce on 2 December 2009. Like gold, silver
also ended lower than its all time high level.
In the currency market on Tuesday, the dollar index, which
weighs the strength of dollar against the basket of six other
currencies fell by almost 0.2%. Earlier in the day, it rose by almost
0.4%.
In a recent move, China's central bank on Tuesday sold
one-year bills at a higher yield for the first time since August 2009,
fanning concern the government is moving to tighten liquidity. The
People's Bank of China on Tuesday lifted the reserve requirements for
banks by a half point and lifted its interbank rate for the second time
in a week. It also raised the auction yield on one-year bills by a
bigger-than-expected 8.29 basis points and drained a record 200 billion
yuan ($29 billion) from the market, signaling a bias to tighten
monetary conditions.
Earlier during the week, Chinese government report showed
that exports climbed for the first time in 14 months and imports
reached record highs. China's imports surged 55.9% in December, while
exports rose 17.7% from the same period a year ago. In addition,
China's Finance Minister pledged to spend the full amount of planned
stimulus in 2010, despite improvements in its economy and efforts to
control bank lending.
Gold had ended FY 2009 higher by 24%. Silver futures had ended
2009 up 50%. The dollar index had lost 4.2% against its counterparts
last year.
At the MCX, gold prices for February delivery closed lower by
Rs 153 (0.89%) at Rs 16,878 per ten grams. Prices rose to a high of Rs
17,084 per 10 grams and fell to a low of Rs 16,730 per 10 grams during
the day's trading.
At the MCX, silver prices for March delivery closed Rs 441
(1.55%) lower at Rs 27,993/Kg. Prices opened at Rs 28,380/kg and fell
to a low of Rs 27,869/Kg during the day's trading.