Prices shoot up as traders mull over euro zone debt solution
Precious metals ended substantially higher on Tuesday, 11 May
at Comex. Long-term implications of the European Union's rescue package
and its impact on the currencies, specially on the euro, bothered
investors and lured investors into safe-haven assets such as gold.
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 June delivery ended at $1,220.3 an
ounce, higher by $19.5 (1.6%) an ounce on the New York Mercantile
Exchange. It was the highest ever closing for gold at Comex. It rose to
a high of $1,225.3 during intra day trading. Gold for June delivery had
settled above $1,200 in early December, only to pull back to $1,172
area and dip as much as the $1,050 vicinity in early February. On 3
December 2009, gold had touched an all time intra day high of $1,226.4.
Last week, gold ended higher by 2.5%. For the month of April,
gold ended higher by 6%. For the first quarter of this year, gold rose
by 1.7%, its sixth quarterly rise. On a year to date basis, gold is
higher by 11%.
On Tuesday, July Comex silver futures ended higher by 74
cents (4.2%) at $19.29 an ounce. Earlier, prices reached a high of
$19.365. Last week, silver ended lower by 0.9%. For the month of April,
silver ended higher by 4.1%. For the first quarter of this year, silver
rose by 3%. On a year to date basis, silver is higher by 11%.
A decision by the European Union and International Monetary
Fund leaders to pledge financial support to the eurozone brought about
a wave of buying and short covering that caused the stock markets
across globe to surge in its best single-session percentage gain in
more than a year yesterday. As per plan, countries in the eurozone that
face financial uncertainty will be eligible to receive some 500 billion
euros from the EU and another 250 billion euros from the IMF. In
addition to those measures, the European Central Bank will buy eurozone
bonds from the secondary market and the Federal Reserve has reactivated
swap lines with foreign institutions. At least for the time being,
those efforts have eased contagion concerns that have surrounded Greece
for weeks.
But traders mulled over the fact today that in the long term
how much financial aid will be pledged for eurozone countries that face
tenuous fiscal conditions and also the issue of how those funds will be
allocated efficiently and whether recipients can remedy their
underlying problems. The long term implication of this on the euro also
bothered investors.
In the currency market today, the euro dropped 0.9% against the dollar. The euro has slipped 11% against the dollar this year.
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.
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. 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.
At the MCX, gold prices for June delivery closed higher by Rs
299 (1.7%) at Rs 17,897 per ten grams. Prices rose to a high of Rs
18,040 per 10 grams and fell to a low of Rs 17,650 per 10 grams during
the day's trading.
At the MCX, silver prices for July delivery closed Rs 1,032
(3.6%) higher at Rs 29,498/Kg. Prices opened at Rs 28,424/kg and rose
to a high of Rs 29,595/Kg during the day's trading.