Bullion metals ended higher today, Tuesday, 22 January, 2008 after the greenback slipped after Federal Reserve declared an emergency interest rate cut to save the Us economy from plunging into a recession. Since the past couple of days, stocks markets worldwide, mainly in Asian region, plunged on fear that U economy would be hitting a recession soon. Silver also gained after dropping earlier in the day.
Gold generally moves in the opposite direction of the U.S. currency. Gold, as a dollar-denominated commodity, suffers from dollar strength.
Comex Gold for February delivery rose $8.6 (1%) to close at $890.3 an ounce on the New York Mercantile Exchange. Earlier in the day it slipped by more than 3.5%. This year, prices have gained 6% till date. Last week, gold suffered a loss of 1.8%.
Comex Silver futures for March delivery fell 11 cents (0.7%) to $16.105 an ounce. Silver has gained 9.2% in 2008. Earlier in the day it slipped by more than 3.5%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.
The Federal Reserve today slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations.
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. Rising crude increases inflationary pressures and vice versa. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.
Gold prices had closed above the $900 mark for the first time on Monday, 14 January, 2008. Since then it has dropped by more than $12.
Gold witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007. In 2006, silver had jumped 46% while gold gained 23%.
On the currency markets, the dollar fell against its major counterparts today pressured by expectations of further rate cuts from the Fed. The dollar index, which tracks the performance of the greenback against other major currencies, was down about 0.7% at 76.311, after earlier dropping as low as 76.251.
In the energy market today, crude oil fell to a six-week low on recession concerns and oil closed lower by 72 cents today at $89.85 barrel.
Gold had climbed 31% in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. The Fed reduced federal funds rate three times in FY 2007.
At the MCX, gold prices for February delivery closed lower by Rs 166 (1.5%) at Rs 11,025 per 10 grams. Prices rose to a high of Rs 11,194 per 10 grams and fell to a low of Rs 10,991 per 10 grams during the day's trading.
At the MCX, silver prices for March delivery closed Rs 530 (2.5%) higher at Rs 20,368/Kg. Prices opened at Rs 20,911/kg and fell to a low of Rs 20,296/Kg during the day's trading.
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