Gold Futures Hit 7-Year Low; Dow Rises 8.11
Market Overview
* Gold futures prices sank to a seven-year low as a stronger U.S. dollar and a weak inflation outlook prompted selling by Arab speculators and overseas producers.
* The stock market drifted through a mixed session, getting off to a sluggish start in the new year.
* Long-term bond yields dropped to the lowest level in more than two months as bond prices surged, a surprisingly strong year-opening rally.
Commodities
Gold for January delivery fell $4.70 on New York’s Commodity Exchange to $328.10 an ounce, matching the Jan. 3, 1986, settlement price for near-term deliveries. The more actively traded February contract also dropped $4.70 to $328.40 an ounce.
January silver sank 3.7 cents to $3.635 an ounce.
Middle Eastern speculators were heavy sellers of gold futures in Hong Kong overnight, which started the slide, according to George Milling-Stanley, precious metals analyst with Shearson Lehman Bros. in New York.
Declining crude oil prices also contributed to gold’s retreat, said Martin Reichenberg, manager of trading services for Pegasus Econometric Group in Hoboken, N.J.
Oil prices are a key component in the price of consumer goods, and gold is regarded as an investment hedge against inflation. So lower oil prices tend to discourage investment demand for gold.
Crude oil futures were pressured by a sharp drop in heating oil because of unseasonably warm weather forecasts for the Northeast, where heating oil is the main home heating fuel. Light, sweet crude for February delivery sank 46 cents to $19.04 a barrel.
Stocks
The Dow Jones average of 30 industrials rose 8.11 points to 3,309.22, bouncing back from a 19.99 drop in the last session of 1992 on Thursday.
But declining issues outnumbered advances by about 6 to 5 in the daily tally on the NYSE. Big Board volume came to 201.21 million shares, against 167.57 million in the previous session.
Analysts said investors seemed hopeful of a rally now that the pressure of year-end selling for tax and portfolio reporting purposes has been removed from the market.
Profit taking was seen as a feature in secondary shares, said Thom Brown, a managing director at Rutherford Brown & Catherwood. He said investors who didn’t take profits at the end of 1992 were taking them in the new tax year.
Many traders were looking ahead to Friday’s scheduled Labor Department report on the employment situation in December for a year-end reading on the state of the economy.
Among the market highlights:
* Gainers among the blue chips included General Motors, up 5/8 to 32 7/8; Exxon, up 1/4 to 61 3/8; Coca-Cola, up 1/8 to 42; General Electric, up 1/2 to 85 1/2, and Eastman Kodak, up 3/8 to 40 7/8.
* But American Telephone & Telegraph dropped 1/4 to 50 3/4; International Business Machines lost 1/4 to 50 1/8, and Philip Morris fell 3/4 to 76 3/8.
* Filenet, among the most active issues in the NASDAQ market, tumbled 7 3/4 to 15. The company said it expects to report a fourth-quarter loss on revenue “falling significantly short” of expectations.
* International Recovery Corp., an NYSE stock, rose 1 3/4 to 14 3/8. The company said it completed the sale of certain assets of its soil decontamination business to PDG Environmental Inc.
* Precious metals issues lost ground as the price of gold for February delivery fell. Newmont Gold dropped 1 1/8 to 31 1/4; ASA Ltd. 7/8 to 31; Homestake Mining 3/8 to 10 5/8, and Battle Mountain Gold 1/4 to 4 7/8.
* Toys R Us dropped 1 5/8 to 38 1/2 in active trading. Traders who had bought the stock on anticipation of a strong holiday season evidently cashed in as the company reported a 10.7% improvement in same-store sales for the eight weeks through Dec. 26.
* May Department Stores slid 1 3/8 to 69 1/4, Wal-Mart lost 1 1/8 to 62 7/8, Kmart gave up 1/2 to 24, Home Depot tumbled 1 7/8 to 65 5/8, and Circuit City slumped 1 5/8 to 50 1/8.
Stocks closed mixed in overseas trading. London’s Financial Times 100-shares average opened the new year with a record close of 2,861.5, up 15 points. Frankfurt’s 30-share DAX average closed at 1,531.33, down 13.72 points. Tokyo stocks ended mixed in a lackluster start to the new year. The 225-share Nikkei average fell 69.13 points to 16,994.08.
Currency
The dollar advanced sharply on world currency markets, piercing key levels against several currencies.
Supporting the dollar was the general belief that the U.S. economy is going to fare far better than European and the Japanese economies, said Randolph Donney, research director at Pegasus Econometric Group.
The latest evidence supporting the notion of a U.S. recovery was a government report showing that construction spending jumped 2.1% in November to the highest level in more than two years.
In New York, the dollar closed at 1.640 German marks and 125.30 Japanese yen, up from 1.621 marks and 124.85 yen respectively on Thursday. The British pound fell to $1.500 to buy one pound, less expensive than Thursday’s $1.511.
Credit
The yield on the Treasury’s main 30-year bond declined to 7.32% from 7.39% on Thursday, the last trading day of 1992. The long bond’s price, which rises when yields fall, climbed 7/8 point, or $8.75 per $1,000 in face amount.
It was the lowest yield on the 30-year bond since Sept. 18. Less than a month ago, the long-term yield exceeded 7.5%.
“A lot of people thought we’d be at 8% by now,” said Carol A. Stone, senior economist at Nomura Securities International Inc. in New York.
The long-term Treasury yield is an important barometer of inflation fears in the economy because it reflects how much investors want in exchange for tying up their money. Inflation erodes the value of fixed-income investments.
The latest sign of tame inflation emerged Monday with the big drops in the price of gold and oil. The Commodity Research Bureau index, a key indicator of inflation pressures scrutinized by the bond market, dropped sharply.
The federal funds rate, the interest on overnight loans between banks, was quoted at 3.25%, up from 3% late Thursday.
Market Roundup, D8
