Gold Futures Rise on Gain in Energy Costs; Silver Advances
Gold Futures Rise on Gain in Energy Costs; Silver Advances
by takeshitsai on Sun Apr 27, 2008 9:40 pm
Gold rose, snapping a two-day slump, as energy costs increased, boosting the appeal of the precious metal as an inflation hedge. Silver also gained.
Crude-oil prices climbed as much as 3 percent today. Gold dropped 3.9 percent in the past two days, while oil declined 2.8 percent. The metal surged 31 percent last year as oil soared 57 percent, spurring the biggest gain in the inflation rate since 1990.
``Gold isn't going to fall too far if crude oil continues to gain,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``Gold is still going to be bought as an inflationary hedge.''
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery rose 30 cents to $889.70 an ounce, after earlier reaching $899. The metal dropped 2.8 percent this week.
Crude oil rose to $119.55 a barrel, approaching the record of $119.90 set on April 22. Gold reached $1,033.90, the highest ever, on March 17.
Still, investment demand has dropped for the metal as the price has failed to keep pace with gains in energy costs. Investment in the StreeTracks Gold Trust dropped to 591.2 metric tons yesterday, marking the first time the fund has fallen below 600 tons since November. The trust reached a record 663.8 tons on March 17.
`Sell Off Sharply'
``Prices could sell off sharply, if not next week, over the next few months,'' said Jeff Christian, a managing director at commodity research company CPM Group in New York. ``Prices could drop to levels below $860, possibly as low as $780. That would be a good buying area.''
Gold fell this week on heightened speculation the Federal Reserve may be nearing the end of a series of interest-rate cuts. Lower borrowing costs since September helped drive the dollar to a record low against the euro.
The euro was headed for the biggest weekly drop against the dollar in six weeks after reaching a record $1.6019 on April 22. The Fed has lowered borrowing costs 3 percentage points to 2.25 percent in six cuts.
``We're probably coming down to the end of the easing cycle,'' Zeman of LaSalle said. ``The Fed may not cut rates next week. That's driving the bounce in the dollar. Commodities, not just precious metals, could see a huge plunge.''
Interest-rate futures show a 74 percent chance the Fed will lower the benchmark rate to 2 percent by April 30, compared with a 98 percent chance a week ago.
`Rate-Cut Cycle Over'
``The improvement in financial markets over the last several weeks takes a more aggressive move off the table entirely,'' said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. ``The rate-cut cycle is essentially over.''
Silver futures for July delivery climbed 19 cents, or 1.1 percent, to $16.958 an ounce. The price has climbed 14 percent this year, while gold climbed 6.2 percent.
A rebound in copper prices helped silver, which has wider industrial applications than gold.
Mitsui Mining & Smelting Co. said this week it is developing a silver-based diesel-exhaust catalyst that would replace the more expensive platinum.
Silver tumbled 4.8 percent this week.
Crude-oil prices climbed as much as 3 percent today. Gold dropped 3.9 percent in the past two days, while oil declined 2.8 percent. The metal surged 31 percent last year as oil soared 57 percent, spurring the biggest gain in the inflation rate since 1990.
``Gold isn't going to fall too far if crude oil continues to gain,'' said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. ``Gold is still going to be bought as an inflationary hedge.''
On the Comex division of the New York Mercantile Exchange, gold futures for June delivery rose 30 cents to $889.70 an ounce, after earlier reaching $899. The metal dropped 2.8 percent this week.
Crude oil rose to $119.55 a barrel, approaching the record of $119.90 set on April 22. Gold reached $1,033.90, the highest ever, on March 17.
Still, investment demand has dropped for the metal as the price has failed to keep pace with gains in energy costs. Investment in the StreeTracks Gold Trust dropped to 591.2 metric tons yesterday, marking the first time the fund has fallen below 600 tons since November. The trust reached a record 663.8 tons on March 17.
`Sell Off Sharply'
``Prices could sell off sharply, if not next week, over the next few months,'' said Jeff Christian, a managing director at commodity research company CPM Group in New York. ``Prices could drop to levels below $860, possibly as low as $780. That would be a good buying area.''
Gold fell this week on heightened speculation the Federal Reserve may be nearing the end of a series of interest-rate cuts. Lower borrowing costs since September helped drive the dollar to a record low against the euro.
The euro was headed for the biggest weekly drop against the dollar in six weeks after reaching a record $1.6019 on April 22. The Fed has lowered borrowing costs 3 percentage points to 2.25 percent in six cuts.
``We're probably coming down to the end of the easing cycle,'' Zeman of LaSalle said. ``The Fed may not cut rates next week. That's driving the bounce in the dollar. Commodities, not just precious metals, could see a huge plunge.''
Interest-rate futures show a 74 percent chance the Fed will lower the benchmark rate to 2 percent by April 30, compared with a 98 percent chance a week ago.
`Rate-Cut Cycle Over'
``The improvement in financial markets over the last several weeks takes a more aggressive move off the table entirely,'' said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. ``The rate-cut cycle is essentially over.''
Silver futures for July delivery climbed 19 cents, or 1.1 percent, to $16.958 an ounce. The price has climbed 14 percent this year, while gold climbed 6.2 percent.
A rebound in copper prices helped silver, which has wider industrial applications than gold.
Mitsui Mining & Smelting Co. said this week it is developing a silver-based diesel-exhaust catalyst that would replace the more expensive platinum.
Silver tumbled 4.8 percent this week.
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