FINANCIAL MARKETS : Surging Gold Price Touches $400 an Ounce
World commodity prices this week extended their explosive 1994 rally, led by gold, which attracted a new wave of speculative buying.
On Friday, key gold futures contracts touched the elusive $400-an-ounce level during the day for the first time since August, 1993, but eased below that level on profit taking at the end of the session.
In other markets, stock prices were marginally lower Friday and bond yields were little changed, awaiting next week’s Federal Reserve Board meeting.
Besides gold, prices of silver, copper and zinc hit high spots Friday, and coffee, cocoa and wheat also surged.
Some key commodities are up 30% or more in price this year, although economists say the gains are just making up for part of the price declines in many raw materials in the late ‘80s and early ‘90s.
“Prices are rising from a low base,” notes Morgan Grenfell Economics in its latest review of the outlook for commodities.
The gold market has been fired higher by concern that the United States is vulnerable to inflation pressure as the economy grows. Gold has risen more than $10 since Sept. 1 on buying by cash-rich commodity funds.
On New York’s Commodity Exchange, December gold futures closed up 60 cents at $399.60 an ounce Friday after rising early in the session to $400.70.
“What we have been seeing is a bit of good old-fashioned gold fever,” said a dealer in London.
Recent strong U.S. economic reports have convinced some investors that business activity is healthy enough to generate higher prices throughout the economy. Gold, as a store of value, is a traditional safe haven in times of rising inflation.
But many Wall Streeters insist that the Fed is serious about restraining the economy and thus inflation. This week, bond yields jumped and stock prices sank as economic data suggested that that Fed could raise short-term rates again, as early as next week.
Higher interest rates would normally take the wind out of gold’s sails. But some analysts say another Fed rate hike has already been discounted by gold traders and that they are looking ahead to the possibility that the economy will fail to slow meaningfully even if the Fed acts next week.
Still, gold’s rising price could backfire by slowing demand. Buying before Christmas by the Italian jewelry industry, the world’s largest user, may be dampened by higher gold prices.
In other commodity trading Friday, copper soared 3.55 cents to $1.29 a pound on the Comex, the highest in more than two years. Analysts cited rising industrial demand and declining copper supplies. Elsewhere, zinc traded in London at $1,040 a ton, its highest since February.
Silver, meanwhile, added marginally to this week’s gains, with the November contract up 0.5 cent to $5.72 an ounce on the Comex.
Crude oil posted its highest close in more than five weeks, with November futures up 16 cents to $17.83 a barrel on the Merc.
In the stock market, the Dow Jones industrial average ended 5.38 points lower at 3,831.75 Friday. For the week, it lost 101.60 points.
Declining issues led advances 1,268 to 880 on the Big Board on Friday, as volume shrank to 297 million shares.
In bond trading, the yield on the Treasury’s 30-year bond inched up to 7.79% from 7.78% on Thursday.
Among Friday’s highlights:
* Basic materials stocks fared well as commodity prices advanced. ASARCO, a producer of copper, silver, lead and zinc, jumped 1 1/8 to 33 7/8, gold miner American Barrick rose 1/2 to 26 3/4 and Phelps Dodge surged 2 to 64 7/8.
* Paper stocks also rocketed. Georgia Pacific leaped 3 1/8 to 74 5/8, Champion International gained 1 3/4 to 39 3/4 and International Paper advanced 1 1/4 to 78 1/4.
* Among the day’s losers, auto stocks fell as investors worried about interest rates. Ford fell 3/8 to 26 5/8 and GM tumbled 1 5/8 to 46 5/8.
* Digital Equipment gave back 2 7/8 to 25 7/8. PaineWebber downgraded the stock to neutral from buy, citing the shares’ price. Digital’s stock had rallied in recent sessions.
* Overseas, Frankfurt’s DAX index rose 16.09 points to 2,089.12 while London’s FTSE 100 index added 7.0 points to 3,028.2. Japanese markets were closed for a national holiday marking the beginning of autumn.
Mexico’s Bolsa index surged 29.01 points to 2,857.52, continuing its rally.
