UPDATE 1-Jittery gold bugs hoist bullion to new highs
Reuters, 05.23.02, 3:28 PM ET
By Alden Bentley
NEW YORK (Reuters) - Gold prices rose above $320 for the first time in 2-1/2 years in New York Thursday, drawing new investors into the rally seeking a safe alternative to financial market fears about global political risk in 2002.
"Over $320 we have the potential for pulling in some new money," said Kevin Crisp, global head of commodities research at Dresdner Kleinwort Wasserstein. "We've seen a tremendous resurgence of interest across this institutional network, of people asking about gold in all kinds of formats. I think we're beginning to see the universe of participants expand."
An investor favorite this year, gold is enjoying its first bull market in a generation and rose each of the last seven days on nervousness about war clouds over India and Pakistan and threats of further terrorist attacks on American targets.
Thursday's rally was led by the New York futures market after London bullion trading wrapped up. After a brief bout of profit taking in the morning, bargain hunting emerged on the COMEX, with stop-loss buying accelerating the move in June futures to $323.30, the contract's highest since June 2000.
The active contract closed up $4.50 at $322.80 an ounce. Earlier it fell to $315.60 after Russian central bank chief Sergei Ignatyev said that some of Russia's gold/foreign exchange reserves could be sold. The banker later explained that he meant only currency reserves, not bullion.
One dealer said the spike came shortly after midday on news that U.S. warplanes had attacked two Iraqi air defense sites, reminding the market of perceived U.S. intentions to go war with Iraq, which it considers part of the "Axis of Evil" because of its attempt to acquire weapons of mass destruction.
"That's when it broke through the previous high," he said. "Today's move you could tie in with the political situation, whereas yesterday's move had more to do with the weakness of the dollar."
Gold bullion was last at $322.30/80, up from Wednesday's New York close at $318.10/60. It topped at $323.60, its highest since Oct 13, 1999, when gold was coming off a $70 spike to $338 prompted when central banks agreed to limit sales and dispel market gloom.
A broker on the floor of the COMEX said one of the catalysts for Thursday's recovery was the surge to a 31-month high in the XAU Index of gold and silver mining equities, the widely-watched benchmark gauge for the sector.
Gold stocks are up more than 60 percent this year, leveraging the more-tame 15 percent rise in underlying bullion prices since Jan 2. Precious metals were among the best performers on Wall Street, where the Jones industrials are up less than one percent.
Gold has prospered from its historic reputation as a store of value, amid uncertainty over the military standoff at the Pakistani-Indian border over disputed Kashmir, the simmering Arab-Israeli conflict and the sell-off in the U.S. dollar which has promoted overseas bullion buying.
Pakistan on Thursday put its capital on a war footing, while India softened its rhetoric a day after its prime minister told troops to prepare for a decisive fight.
The neighbors, both nuclear powers, have amassed more than a million troops along the border since India blamed a December attack on its parliament on Pakistan-backed Islamic militants.
The armies have exchanged heavy fire daily this week after another deadly assault on an Indian army camp by suspected Pakistan-based Kashmiri separatists left 30 dead, mostly women and children.
Meanwhile, a suicide bomber struck in another Israeli town on Thursday and hours later suspected Palestinian militants tried to set ablaze a major Israeli fuel pumping depot near Tel Aviv by detonating a bomb on it. But workers at the plant extinguished the fire before it spread.
Gold was undeterred by a dollar recovery from multi-month lows hit Wednesday. Other factors have been at play in the rally, most importantly last year's 11 U.S. interest rate cuts, which reduced U.S. deposit rates to 40-year lows and made gold, a nonyielding asset, look more attractive.
The narrower spread between gold and dollar returns also eliminated gold's forward premium -- known as contango in the commodity business -- which raised the cost for speculators and mining companies to sell bullion.
Many gold companies have been buying back forward hedges booked when bullion was locked in the bear market that saw it plumb a 20-year low at $252 in August 1999. Those forward sales allowed miners to generate revenues when prices were weak. But they backfired when gold went up, angering gold bug investors.
Companies that were not hedged, like No. 1 producer Newmont Mining, were able to reap the full benefit of higher prices this year, while hedgers are now out to increase their exposure to the rally.
"I haven't noticed the producers especially anxious to jump into the market yet. If anything the higher it goes the more antsy they become," the dealer said.
Copyright 2002, Reuters News Service |
