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. Small stocks gave ground.

* Long-term Treasury bond yields dropped to the lowest level in more than two months as the bond market staged a surprisingly strong year-opening rally.

Commodities

In a dramatic sign that investors see no increase in inflation on the horizon for 1993, January gold futures tumbled $4.70 to $328.10 an ounce on New York’s Commodity Exchange, the lowest price since January, 1986.

Middle Eastern speculators triggered the slide by selling gold futures heavily overnight in Hong Kong, said George Milling-Stanley, metals analyst with Shearson Lehman Bros.

Traders said gold investors have grown increasingly bearish on the metal’s prospects as global economic growth continues to decelerate, at least in most major economies outside the United States. Slow growth suggests little risk of inflation, which is the major reason investors own gold.

“There is a buyer’s boycott in gold,” said Bernard Savaiko, metals analyst with PaineWebber. “There is not enough buying to absorb the selling.”

Silver also slid on the Comex Monday, losing 3.7 cents to $3.64.

Declining oil prices contributed to gold’s retreat by removing yet another inflation threat.

Light, sweet crude for February sank 46 cents to $19.04 a barrel on the New York Mercantile Exchange. Prices were pressured by a sharp drop in heating oil because of unseasonably warm weather forecasts for the Northeast.

Stocks

Stocks opened the new year with a mixed showing, as industrial issues gained while many smaller stocks fell in profit taking.

The Dow Jones industrial average rose 8.11 points to 3,309.22. But the NASDAQ composite index of smaller stocks dropped 5.15 points to 671.80, after closing out 1992 at a record high.

Declining issues outnumbered gainers 11 to 9 on the NASDAQ market and 10 to 9 on the New York Stock Exchange. Big Board volume was 201.21 million shares, against 167.57 million Thursday.

Traders hit some issues hard, taking profits as the new year began. Smaller stocks were particularly vulnerable because of their sharp gains in the fourth quarter, analysts said.

But the strength in industrial issues suggested that the market continues to have a very optimistic outlook on the economy. Traders are looking ahead to Friday’s Labor Department report on December employment--the first major indicator on December economic activity.

Among the market highlights:

* Industrial stocks were led by Alcoa, up 1 3/8 to 73; Du Pont, up 1 1/8 to 48 1/4; Ford, up 1 1/8 to 44; Reynolds Metals, up 1 7/8 to 55, and Raytheon, up 1 1/4 to 52 1/2.

Also, Xerox jumped 3 1/8 to 82 3/8. The firm introduced software that lets people use paper to communicate with personal computers, allowing long-distance computing by fax machine.

* Technology stocks were mixed. Southland-based FileNet shocked investors by announcing that it will record a fourth-quarter loss. It cited disappointing U.S. and European sales of its imaging-software systems. The stock plummeted 7 3/4 to 15 on the NASDAQ market.

Among other tech stocks, Dell Computer fell 2 3/4 to 45 1/4, Motorola lost 1 1/8 to 103 3/8, Computer Sciences gave up 1 5/8 to 76 5/8, and Newbridge Networks tumbled 2 5/8 to 38 5/8. But Adobe Systems added 1 3/4 to 33 1/4, and System Software rose 1 1/4 to 24 3/4.

* Retailers were hit by profit taking. Toys R Us dropped 1 5/8 to 38 1/2 despite reporting same-store sales up 10.7% over Christmas.

Elsewhere in the group, 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, Circuit City slumped 1 5/8 to 50 1/8, and Staples slumped 2 to 39 1/4.

Overseas, London’s Financial Times 100-share average opened the new year with a record close of 2,861.5, up 15 points. But Frankfurt’s DAX average closed at 1,531.33, down 13.72 points, and in Paris the CAC 40 index dropped 14.70 points to 1,843.08.

Tokyo stocks ended mixed in a lackluster start to the new year. The Nikkei average fell 69.13 points to 16,994.08.

Credit

Long-term interest rates fell sharply, as the anti-inflationary tone of gold’s slide encouraged investors to lock in bond yields.

The yield on the Treasury’s 30-year bond tumbled to 7.32% from 7.39% on Thursday, the last trading day of 1992. The bond’s price climbed $8.75 per $1,000.

The bond’s yield was the lowest since Sept. 18.

Shorter-term rates also dropped, but investors’ appetite was clearly strongest for long-term bonds.

Analysts noted that investors have taken an increasingly positive view of the incoming Clinton Admininstration. Many bond investors believe that the President-elect is serious about restraining the federal budget deficit. If federal borrowing can be slowed it would give investors more confidence that long-term interest rates can drop further.

The federal funds rate, the interest on overnight loans between banks, was quoted at 3.25%, up from 3% late Thursday.

Currency

The dollar advanced sharply on world currency markets, piercing key levels against several major 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.

Market Roundup, D8