Metals Prices Soar Against Weak Dollar

January 6, 2004

Metals Prices Soar Against Weak Dollar

Prices for gold, silver, platinum and other metals soared Jan. 5 as investors yanked money out of the falling dollar and put it into metals. Gold prices rose 2% to $424.40, the highest level since December 1988 and up 21% from a year ago. Silver rose 28 cents to $6.23 per ounce, the highest level in nearly six years, while platinum rose $31.20 to $842.50.

The gains are unlikely to mean drastically higher prices for consumers. Strong international competition will force manufacturers to eat the added costs, say some analysts. "Sure, jewelry is going to be more expensive, some electrical components will be more expensive ... but it's been difficult to pass on price increases," says Jim Pogoda of the metals group at Mitsubishi International.

"The rising cost of 14k gold has been very difficult," says Pamela Meltzer, president of PuppyPaws, which sells jewelry featuring dog paws in gold and platinum. She tells USA Today that she hasn't raised her prices despite the gain in metal prices. Instead, she cut costs in other areas.

Most of the gains in metals prices were due to the continued fall of the dollar. Monday, the dollar set a record low at $1.27 per euro and weakened against the yen despite attempts by the Bank of Japan to intervene to stem the appreciation in its currency. Fluctuations in U.S. currency directly affect metals because metals are priced in dollars. When the dollar falls, metal prices rise to adjust for the dollar's decline.

Investors have also been drawn to metals as the world economy improves. Higher growth is expected to lead to increased demand for goods, requiring more metals in the production process. Low interest rates for bank accounts are also leading some investors to buy metals as they search for greater rates of return. Lara Rhame, senior economist at Brown Bros. Harriman, says the dollar will continue to fall at least through the first half of 2004. That will likely lead to continued gains in metals prices.

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