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Thursday, November 11, 2010

Precious metals turn pale

Silver sheds most of its prior day's gains as margin requirements tighten 

Precious metal prices dropped from their recent historic highs on Wednesday, 10 November 2010. Strong dollar and reports of tighter margin requirement for silver pricing acted as the dampener for the recent upsurge in bullion metal prices. Precious metals have been striking new records since past few days trended following last week's confirmation of a new round of quantitative easing. 

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. But bullion metals have registered increase in prices despite strong dollar in recent times and vice versa. 

On Wednesday, gold for December delivery ended at $1,399.3 an ounce, lower by $10.8 (0.8%) on the New York Mercantile Exchange. It traded to its session lows, at $1383.40, in mid-morning trade and spent the remainder of the day bouncing off those lows. 

Gold has surged to records since late August on expectations that Federal Reserve efforts at monetary stimulus will depress the dollar, making gold more valuable as an alternative store of wealth. Precious metals are also benefiting from safe-haven appeal as worries about European debt, particularly Irish bonds, have resurfaced. 

Gold ended the month of October 2010 higher by 3.8%. Before this, it ended September 2010 and the third quarter higher by 5%. It was eighth consecutive quarterly gain for gold. For the second quarter, gold ended up by 12%. For the first quarter of this year, gold rose by 1.7%. On a year to date basis, gold is higher by 29.2%. 

On Wednesday, December Comex silver futures ended lower by $2.02 (7.1%) at $26.89. 

Silver's trading volume on Comex hit a record level on Tuesday. Margins are the money investors put up to be able to trade a futures contract. Minimum maintenance margin requirements for silver reportedly went to $6,500 from $5,000 per contract. 

For the month of October, silver gained 13%, its third consecutive monthly gain. In September, silver ended higher by 12%. For the third quarter, silver gained nearly 18%. For the second quarter, silver ended higher by 3.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 62.9%. 

In the currency market on Wednesday, the dollar index, which measures the strength of the dollar against a basket of six other currencies, erased most of its initial gains and ended higher by 0.2%. 

The Labor Department in US reported on Wednesday, 10 November 2010 that the number of workers who filed new claims for unemployment benefits fell 24,000 last week to 435,000 for the week that ended on 6 November. Market had expected initial claims to fall to a seasonally adjusted 450,000. The four-week average of initial claims, however, sank to its lowest level in two years, down 10,000 to 446,500. 

The Commerce Department in US reported on Wednesday, 10 November 2010 that the U.S. trade deficit narrowed in September as exports rose to their highest level in more than two years. As per the report, the nation's trade deficit contracted 5.3% in September to $44.0 billion from $46.5 billion in August. The government initially pegged August's deficit at $46.3 billion. 

Additionally, the Labor Department in US reported on Wednesday, 10 November 2010 that due to rise in fuel costs, prices of goods imported into the United States rose 0.9% in October 2010. Prices for imports excluding fuels increased a smaller 0.3%. 

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 December delivery closed lower by Rs 294 (1.4%) at Rs 20,233 per ten grams. Prices rose to a high of Rs 20,463 per 10 grams and fell to a low of Rs 20,090 per 10 grams during the day's trading. 

At the MCX, silver prices for December delivery closed Rs 2,753 (6.4%) lower at Rs 39,899/Kg. Prices opened at Rs 42,476/kg and fell to a low of Rs 39,626/Kg during the day's trading.
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