The dollar and the gold have an inverse relation with each other. The safe yellow asset is consequently regaining its appeal as a hedge against a weak dollar seducing investors towards it and being a sort of a substitute asset to the U.S currency.
Gold price plummeted by 8.81% at USD 871.55 as against its previous week closing at Rs 892.9 a troy ounce in this week (June 9-13, 2008). In above said period, the shiny metal opened higher on the back of the weakening dollar and the fact the oil prices inclined to a record high but volatility in the currency markets has led gold prices to see-saw this week, albeit within a relatively narrow range.
On Monday, Gold prices closed downward at USD 892.9 a troy ounce in international spot market as strengthened dollar pulled away investors from gold as its role of a hedge against inflation did not exist any more till the dollar falls once again. Whereas on Wednesday Gold prices have slightly increased at USD 880.35 a troy ounce as the dollar weakened against Euro.
Gold was not able to sustain it higher position on Thursday and bounced back in red trading at USD 868.2 a troy ounce as it lost its role of a hedge against inflation and as an alternative asset on the back of regaining US currency. Finally, on week ending on Friday the gold slipped at USD 971.55 a troy once level.
International bullion market movement and forex fluctuations affected the Indian bullion market sentiments in this week as most of India`s gold is imported and a weak rupee makes imports expensive On MCX, gold futures have shown swinging trend fallowing the volatility in global market. Gold Aug contract traded in range of Rs 12,118-108 per 10 grams.
The crude market is faintly gaining as the dollar headed for its biggest weekly gain in almost three years. Crude prices declined recording below USD 135 a barrel, as oil is no longer a hedge against a surging dollar that reduced the appeal of oil in the market as investors are targeting high returns.
On NYMEX, Crude oil futures on Friday posted a weekly loss of almost 3% on lower forecast for growth in global oil demand. Crude oil July contract declined by 2.7% at USD 134.86 a barrel as compared to its previous week closing at USD 138.54 a barrel. A report of Saudi Arabia that plans a sizeable increase in crude production also pressurized the oil prices to trade lower.
In broader sense, the combination of continued global supply disruptions, increasing global demand and wild swings in U.S. domestic supply/demand data are influencing energy prices in recent days.
US Energy Information Administration in Energy outlook stated that the ongoing geopolitical concerns in several producing countries, including Venezuela and Iran, have contributed to oil price volatility. In contrast, consumption in the non-OECD countries is projected to grow by 1.2 million bbl/d in 2008, led by China, India, and the Middle East.
Supply concerns are back in the market as the EIA `s weekly crude oil inventory report came out showing that the U.S economy is demanding crude heavily which caused a decline in inventories. The EIA report was released this week have shown that U.S. commercial crude oil inventories declined by 4.6 million barrels from the previous week.
OPEC in its June monthly report said, that global oil demand was now projected to grow by 1.28% in 2008, compared with the previous estimate of 1.35%. ``World oil demand growth (in 2008) is forecast to grow by 1.1 million barrels per day (bpd) to average 86.88 million bpd, a downward revision of 0.1 million bpd from the previous report ,`` OPEC said in its monthly report released Friday.
Strengthen US Currency
This week ended with the U.S. Dollar posting its biggest gain on comments from the Fed and the Treasury which helped turns the Dollar around to finish the week in a strong position. The US dollar advanced against the euro and yen, consequently became much stronger. This gaining dollar has played a major role in the market as it made investments swap from the gold and the oil to the green currency.
The dollar found further support after a US government report showed consumer prices index last month accelerated than expected which increased the individual spending in the U.S economy.
A combination of Fed and treasury mix comments in hiking interest rate created confusion in currency market. However traders are waiting for the resolution from G-8 meeting which will be released over the weekend. It is projected that the G-8 statement will be supportive for dollar.