MARKETS REACT TO KUWAIT CRISIS : Metals : Gold at First Soars But Gives Up Some Gains
Gold prices rose sharply Thursday in response to the invasion of Kuwait but closed well below trading peaks reached early in the day.
Gold for current delivery soared above $385 an ounce in early trading but ended the session at $376.80, up $3.50, on New York’s Commodity Exchange.
Precious metals analysts said the initial dramatic price run-up was mainly because of hasty “short covering” by speculators who, until the invasion news, had expected the price of gold to drop. Ian C. MacDonald, manager of the Precious Metals Corporate Advisory of Credit Suisse in New York, said: “There was terrific short covering overnight,” referring to Wednesday night and early Thursday morning Pacific time.
Later in the day, however, profit taking set in, and mining companies stepped in to sell gold and take advantage of the higher price, helping to drive prices back down.
Precious metals such as gold are often considered a safe haven in times of crisis. Gold prices typically rise when world tensions escalate.
In London, gold rose to $378.75 an ounce from $374.30 late Wednesday. The precious metal rose in Zurich to $379 from $371.50 late Tuesday. (The Zurich market was closed Wednesday because of a holiday.) Earlier, gold in Hong Kong rose $7.93 to close at $379.39.
MacDonald predicted that the gold market may be erratic, reacting to news developments in the Middle East. “This market will certainly be news- or rumor-driven for the next several days,” he said.
Jeffrey A. Nichols, president of American Precious Metals Advisors, said he expects the price of gold in coming months to rise, especially if the U.S. dollar weakens. He said demand for gold is unusually high now, mainly because of exceptionally strong sales of jewelry worldwide. Supplies also have been tight, in part because South African production has fallen and Soviet sales of gold have been lower.
John H. O’Connell, senior metals analyst at Refco Inc., a major commodities brokerage, said the determining factor in gold price movements will be whether the dollar weakens. He said price increases are likely to be gradual, “not driven by runaway enthusiasm.”
