COMMODITIES : Metals Rally as Bonds, Dollar Fall : Livestock, Grains Close Mixed in Light, Cautious Trading

Precious metals futures prices rebounded Wednesday in response to weaker bond prices and a softer dollar, but analysts continued to predict that gold would soon return to its recent lows below $400 an ounce.

On other markets, energy futures rallied sharply, livestock and meat gained, grains and soybeans were mixed, and stock index futures retreated.

Gold for October delivery traded as high as $409 an ounce on New York’s Commodity Exchange and December gold hit $416 as traders interpreted lower bond prices and the weaker dollar as bullish signals for the precious metals.

But to chart-watching technical traders, those gold prices--the highest in three weeks--meant the market was overbought. The technicians sold, driving the December contract down to a close of $412.20, although the spot contract held up well, settling at $408.40.

Analyst Peter Cardillo of Josephthal & Co. in New York, said the bond and dollar weakness that precipitated Wednesday’s gold rush was largely based on expectations that the government would report a widening of the U.S. trade deficit in a report due out this morning.

Meanwhile, he said, the low inflation rate, ample gold supplies and other factors that led to the gold market’s collapse last month remain in place.

“I think the market is in an overbought condition and I think we’ll test the recent lows of $390 to $395” in the December contract, Cardillo said.

Gold settled $3.80 to $4.70 higher, with the contract for delivery in December at $412.20 an ounce; silver was 11.9 to 12 cents higher, with December at $6.395 an ounce.

Pork Bellies Higher

Cattle futures posted strong gains due to higher cash markets and indications of firmer demand for beef at the wholesale and retail levels, analysts said. Pork futures gained on spillover buying from the cattle pits.

Live cattle settled 0.25 cent to 1.02 cents higher, with October at 72.60 cents a pound; feeder cattle were 0.10 to 0.73 cent higher, with October at 81.75 cents a pound; hogs were 0.22 cent lower to 0.30 cent higher, with October at 40.30 cents a pound; frozen pork bellies were 0.05 to 0.17 cent higher, with February at 48.05 cents a pound.

Grain futures finished mostly higher while soybeans ended mostly lower on the Chicago Board of Trade in light, cautious trading ahead of the Agriculture Department’s revised crop production report.

The report, issued shortly after the close, pegged soybean production at 1.5 billion bushels and corn production at 4.55 billion bushels.

Both of those estimates were higher than the USDA’s September projections, reflecting better-than-expected yields from the ongoing harvest.

The numbers indicated that drought damage would result in a 35% reduction in the corn crop from last year’s 7.1 billion bushels and a 21% drop in soybean production from last year’s 1.9 billion bushels.

Analysts and traders said the report was slightly bearish for grain and soybean prices but they did not expect a major selloff.

“I wouldn’t be surprised if it ticks down and goes right back up,” said Walter Spilka, an analyst in New York with Smith Barney, Harris Upham & Co.

Wheat settled 0.25 cent lower to 2 cents higher, with December at $4.3475 a bushel; corn was 0.50 cent lower to 1.5 cents higher, with December at $2.9625 a bushel; oats were 1 cent to 2 cents higher, with December at $2.5675 a bushel; soybeans were 3.24 cents lower to 1 cent higher, with November at $7.9025 a bushel.

Stock index futures fell sharply on the Chicago Mercantile Exchange, where the contract for December delivery of stocks on the Standard & Poor’s 500 index settled 3.94 points lower at 273.99.