Gold and silver prices soar on higher demand as inflation hedge

Bullion metals were back in their rally and the same soared today, Tuesday, 19 February, 2008. Prices soared as other commodity prices also increased with slipping dollar. Silver prices ended higher for the day. On the other hand, crude prices closed above $100 mark for the first time ever today.

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 April delivery rose $23.7 (2.6%) to close at $929.8 an ounce on the New York Mercantile Exchange. On 30 January, 2008 prices had hit a high of $941 in the after hours trading. This year, prices have gained 11.6% till date. In January, prices gained 11%, the highest monthly gain since April 2006. Last week, gold prices suffered a loss of $16.2/ounce (1.8%).

Comex Silver futures for March rose by 39 cents (2.3%) to $17.508 an ounce. Silver has gained 15.8% in 2008. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years. In January this year itself, prices climbed 14%.

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 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%.

In the energy market today, crude-oil futures surged nearly 5% to close above the $100 a barrel mark for the first time ever, as concerns that the Organization of Petroleum Exporting Countries may cut production boosted prices. Prices closed above the $100 mark at $100.1/barrel for the first time ever.

The dollar began day under pressure. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, dropped 0.4% to 75.945.

Gold dropped last week after the Group of Seven officials meeting in Tokyo over the last weekend said they supported the International Monetary Fund's effort sell its gold reserves in order to invest in higher-yielding assets. The IMF is the third largest holder of gold in reserves after the U.S. Federal Reserve and the German central bank.

As per the London-based World Gold Council, the global gold demand dropped to 843 metric tons from 1,013.4 tons in the last three months of 2007. Buyers from India, the world's biggest user, reduced purchases by 64% in the last quarter to 83.9 tons. About 68% of gold demand last year came from jewelers and jewelry use dropped 17% in that time.

At the MCX, gold prices for April delivery closed higher by Rs 258 (2.2%) at Rs 11,836 per 10 grams. Prices rose to a high of Rs 11,872 per 10 grams and fell to a low of Rs 11,587 per 10 grams during the day's trading.

At the MCX, silver prices for March delivery closed Rs 434 (1.9%) higher at Rs 22,348/Kg. Prices opened at Rs 21,940/kg and went to a high of Rs 22,440/Kg during the day's trading.