Precious Metals Gain on Deficit News

Precious metals futures seemed the big winner and interest rate futures the hardest hit Thursday after a record U.S. trade deficit for October pressured prices of many commodities from the opening bell but failed to prevent most from finishing the day with gains.

In other futures markets, soybeans posted impressive gains; cattle rebounded and crude oil added modestly to Wednesday’s gains.

“The trade figures were very discouraging,” said Sam Kahan, economist with Kleinwort Benson Government Securities in Chicago. “First, the large increase was concentrated in autos and machinery.”

The trade data showed a 25% jump over September, to a deficit of $17.6 billion.

“Secondly,” Kahan continued, “U.S. exports rose less than 4% and for the economy to continue growing, exports have to grow more robustly. The dollar has been declining for a year and a half, and the easy part of making inroads into export markets is over.

“That could mean a weakening U.S. economy and higher interest rates ahead,” he said.

On those expectations, Treasury bond futures settled 1 25/32 lower across the board, with the December contract on the Chicago Board of Trade at 85 5/32.

The same trade figures, however, made the precious metals a good buy.

“There was a slow, steady climb by gold over the course of the day and the reasons are two-fold,” said Jack Barbanel, director of the futures trading division for Gruntal & Co. in New York.

“Psychologically, there was a flight toward quality and hard assets, and secondly, there’s a feeling if the trade numbers don’t improve, we could see a re-inflated economy in 1988,” he said.

Gold settled $7.80 to $9.40 higher, with December at $492.30 an ounce on the New York Commodity Exchange; silver rose 20 cents to 24.7 cents to $6.93 an ounce.

Platinum climbed $3.30 to $9.10 higher, with December at $501.70 an ounce on the New York Mercantile Exchange.

Soybean futures prices finished sharply higher while grain futures were mixed on the Chicago Board of Trade.

The soybean trading pits enjoyed “the best of all possible worlds today,” said Walter Spilka of Smith Barney, Harris Upham & Co. in New York.

“We had higher precious metals prices; we expect to see a supportive USDA report on exports, and there’s a significant decline in the cost of soybeans and soybean products targeted for our currency-sensitive trading partners in Western Europe and Japan,” he added.

Wheat settled 2 cents lower to 1 cent higher, with the December contract at $3.0525 a bushel; corn was 1 cent lower to 2.25 cents higher, with December at $1.8875 a bushel; oats were 1 cent lower to 1.50 cents higher, with December at $2.015 a bushel, and soybeans were 3 cents to 10 cents higher, with January at $5.99 a bushel.

Fears that some spillover from the weak stock market opening would push livestock and pork futures lower at the Chicago Mercantile Exchange proved to be true--but only momentarily.

“The lows were established right at the opening,” said Philip Stanley of Thomson McKinnon Securities Inc. in Chicago. “We quickly rebounded, and then most of the volume came in short-covering.”

Live cattle was 0.55 cent to 0.83 cent higher, with December at 64.10 cents a pound; feeder cattle were 1.28 cents to 1.45 cents higher, with January at 75.32 cents a pound; hogs were 0.58 cent lower to 0.45 cent higher, with December at 42.72 cents a pound, and frozen pork bellies 0.10 cent lower to 0.42 cent higher, with February at 51.87 cents a pound.