Gold Price Steadies After Sharp Plunge; Stocks Inch Higher : Markets: On the eve of the Senate vote on deficit-reduction plan, NASDAQ small-stock index hits new high.
Gold prices steadied Friday, one day after the metal’s price took its biggest plunge in three years.
On Wall Street, stocks were higher and interest rates were mostly unchanged as President Clinton’s budget plan went to the Senate for a final vote.
The NASDAQ composite index of 4,000 mostly smaller stocks hit a new high, rising 2.58 points to 718.08, in what some analysts said may indicate investors’ belief that small stocks could benefit from the Clinton program.
In the gold market, the August futures contract on New York’s Commodity Exchange slipped 70 cents to $376.50, after losing $22 in a wild selloff on Thursday.
While gold traders had been stunned by the magnitude of Thursday’s selling, many noted that profit taking in the metal was long overdue, given its sharp advance from $370 in June to about $410 a week ago.
Gold and other precious metals have been climbing this year on inflation worries and on increased demand for gold jewelry, especially in Asia.
On Friday, a major international investor who was credited with helping to spark the gold rally last spring also was fingered as a big seller in Thursday’s meltdown.
Some traders speculated that George Soros, one of the world’s most respected investors, had dumped gold on Thursday. In April, news that he had made a heavy investment in gold mining firm Newmont Mining encouraged other investors to jump into gold.
Soros’ firm in New York said it wouldn’t comment on the gold-sale rumors Friday. And some analysts doubted that Soros was involved in the blood bath.
“The Soros rumor was a natural rumor that would develop, but there’s no substantive evidence that Soros was involved,” said William O’Neill, senior futures analyst at Merrill Lynch & Co..
Meanwhile, commodity prices in general were weak Friday, and other metals continued to dive:
* In platinum futures trading, August contracts lost $7.10 to $385.50 an ounce after falling $25 on Thursday.
* August silver futures plunged 20.4 cents to $4.57 an ounce, after tumbling 47.9 cents on Thursday.
Silver had risen 51% since January and was thus poised for a steeper drop than gold, which had gained only half as much over the same period, said Peter Cardillo, analyst at Westfalia Investments Inc. in New York.
“Silver never belonged trading at the levels it did,” he said. “Basically it was overbought, overinflated.”
At the start of the year, silver sold for $3.67 an ounce.
Stocks
Many investors took to the sidelines ahead of the Senate vote on the Clinton budget plan, but among those who remained, buyers outnumbered sellers.
The Dow Jones industrials rose 11.46 points to 3,560.43, still below the record 3,567.70 reached on July 26. For the week the Dow was up 20.96 points.
Winning stocks topped losers by about 10 to 9 on the New York Stock Exchange on Friday, on thin volume of 221 million shares.
Most of the action was in the market for smaller stocks. The NASDAQ index reached a new high, as did the Russell 2,000 index, which some traders consider to be a purer measure of smaller companies than the technology-heavy NASDAQ index.
The Russell index gained 0.50 point to 238.72.
Ron Hill, investment strategist at Brown Brothers Harriman, said smaller stocks were being viewed as possible winners under the tax changes in the Clinton plan.
By increasing taxes on ordinary income to nearly 40% for high-income earners, while keeping the capital gains tax at 28%, more investors may decide to forsake dividend-paying stocks in favor of smaller, riskier stocks that might provide bigger long-term capital gains, Hill said.
For the same reason, more investors may be inclined to switch from bonds to stocks in the months ahead, analysts noted.
The market seemed unmoved Friday by news that the nation’s unemployment rate dipped to 6.8% in July, the lowest level in 22 months and down from 7.0% in June. Job creation in July was said to be largely in temporary positions, and indicated an economy growing moderately at best.
Among the market highlights:
* The Dow would have closed lower except for gains in two key stocks. Eastman Kodak surged 3 1/4 to 58 5/8 after its board fired the firm’s chief executive. The move raised hope that Kodak’s restructuring plans will be accelerated.
Also, Sears jumped 1 7/8 to 55 as investors reacted to its Thursday report of a 15% increase in same store sales in July.
* Some other retailers followed Sears higher. May Department Stores gained 1 to 42 7/8, Nordstrom rose 1 3/8 to 28 3/8 and Mercantile Stores was up 1/2 to 31 5/8.
* Gold stocks were mixed, one day after being pummeled. ASA gained 3/4 to 45 1/8 and Homestake Mining added 1/4 to 19 1/8, but Hemlo Gold lost 1/4 to 9 5/8 and Pegasus Gold slid 5/8 to 23 1/4.
* Many technology stocks continued to rally. Intel surged 1 1/2 to 57 1/4, Compaq leaped 2 1/8 to 50 5/8, Cabletron Systems jumped 4 5/8 to 114 3/8, Qualcomm soared 3 1/4 to 71 and Texas Instruments gained 1 3/4 to 76.
* Defense stocks were broadly higher. McDonnell Douglas rose 1 7/8 to 85 5/8, Raytheon added 1 1/4 to 60 1/2, E-Systems surged 1 5/8 to 45 7/8 and Rockwell was up 1/8 to 35 1/8.
* Leading casino stocks advanced after Mirage Resorts said it may spin off its Golden Nugget casino to shareholders. Mirage jumped 2 7/8 to 49 7/8, Caesars World added 1 3/4 to 46 3/4 and Circus Circus gained 1 1/2 to 39 3/8.
Overseas, most European markets closed the week with big gains, continuing to anticipate sharply lower interest rates.
In Paris, the CAC-40 index jumped 34.53 points to a record 2,149.83. In London, the FTSE-100 index also hit a record, rising 26.4 points to 2,969.80. And in Frankfurt, the DAX-30 index was up 8.68 points to 1,869.38.
In Tokyo, however, the Nikkei index lost 67.70 points to 20,357.94.
Other Markets
Bond yields closed mostly unchanged, awaiting the Senate’s budget vote and next week’s heavy sales of new Treasury securities.
The yield on the Treasury’s benchmark 30-year bond closed flat at 6.52%, just above its historic low of 6.51% set on Tuesday.
Bond investors view the Clinton budget program as favorable on two counts. First, the higher taxes it contains could tend to slow the economy, leading to lower interest rates overall.
Second, the federal-deficit reduction plan in the program could mean less government borrowing ahead, which also would take pressure off interest rates.
But traders noted the market faces a big test next week, when the Treasury conducts its quarterly refunding. The government will sell $38.5 billion in new notes and bonds over a three-day period beginning on Tuesday.
Elsewhere, the dollar finished weaker Friday against major European currencies but slightly higher against the Japanese yen.
Talk that European central banks were buying German marks helped depressed the dollar. The central banks may have been replenishing their reserves of marks, after selling the currency heavily a week ago in the midst of the European currency crisis.
In New York, the dollar finished at 1.697 marks, down from 1.711 marks on Thursday.
But against the yen the dollar rebounded slightly to 104.35 from 104.05 Thursday.
Market Roundup, D4
