Sale by Britain Pushes Gold to 20-Year Low
Gold tumbled to a 20-year low Tuesday as the Bank of England launched a major selling program to reduce its holdings of the metal, joining other key nations that have been jettisoning reserves.
The bank auctioned 25 metric tons for $261.20 an ounce, raising $210 million that Britain will invest in bonds.
Although the sale was expected, the auction price--a 0.4% discount to the London spot-market price at the time of the auction--disappointed traders who had hoped that the large quantities being sold would fetch a slightly above-market price.
In New York trading after the sale, near-term gold futures plunged $6.80 to $257.30 an ounce, the lowest closing price since May 1979.
Elsewhere on Wall Street, stocks were mixed after a powerful early rally gave way to profit-taking. Rising bond yields caused some jitters, helping push the Dow Jones industrial average down from a midday record of 11,236.76 to 11,135.12 at the close, off 4.12 points.
Broader market indexes also fell. The Nasdaq composite eased 4.24 points to 2,736.78 after reaching a record 2,787.17 during trading.
Britain’s gold sale is the latest by major nations, including Australia, Belgium and Canada, that have decided it makes more sense to reduce national reserves of gold in favor of interest-paying securities, such as bonds.
But with gold already in a downward spiral in recent years--a result of low inflation, weak Asian demand and other factors--each new government sale adds to the market’s bearish tone.
Ironically, gold’s latest decline comes amid expectations for rising economic growth worldwide, which could raise inflation pressures. Gold is the traditional inflation hedge.
Treasury bond yields reflected those inflation concerns on Tuesday: The yield on the bellwether 30-year T-bond edged up to 6.03% from 6.00% on Friday.
Bonds also are under pressure as U.S. companies rush to borrow via new bond offerings, flooding the market with securities.
Bonds above 6% are a psychological negative for stocks. “A good case can be made that bonds look cheap relative to stocks here,” said Timothy Ghriskey, a money manager for Dreyfus Corp., which oversees $125 billion.
Stocks sold off in late afternoon after all major share indexes hit record highs.
Jim Weiss, deputy chief investment officer for equities at State Street Research & Management Co. in Boston, said the high valuations of many stocks could create a punishing environment for companies whose earnings disappoint.
Second-quarter earnings will be rolling out in coming weeks, and they are expected to be strong overall.
Among Tuesday’s highlights:
* Energy stocks were mostly higher as the price of crude oil briefly topped $20 a barrel for the first time since late-1997--another potentially inflationary signal.
Near-term crude futures edged up 9 cents to $19.78 a barrel.
Oil stocks also were helped by TotalFina’s hostile takeover bid for Elf Aquitaine in Europe. Elf’s U.S.-traded shares surged $15.69 to $90. Among U.S. oil shares, Chevron gained $2.06 to $98.31 and Unocal rose $1.50 to $43.38.
* General Motors jumped $3.06 to $71.69 as Barron’s reported that Sanford C. Bernstein & Co. analyst Gary Lapidus forecast that auto maker’s stock could reach $185 by 2004. Lapidus said the stock could reach that level if GM spins off its Hughes Electronics unit to help fund a share buyback that would boost earnings per share.
* Semiconductor-related stocks were boosted by news of strong May sales. Micron Technology jumped $2.69 to $45 and Applied Materials gained $2.38 to $74.50.
* Many Internet-related shares also advanced. Earthweb surged $6.38 to $42.25, Amazon.com gained $2.81 to $126.88, America Online rose $5.69 to $120.94 and Ticketmaster rose $3.75 to $32.88.
Market Roundup, C9
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Gold Stocks: More Gloom
Shares of major gold mining companies tumbled again on Tuesay as gold bullion fell to fresh 20-year lows. Many of the stocks are nearing their 52-week low prices. The exceptions are the relative few that are still expected to be profitable this year despite gold’s slump. Those profit estimates are subject to change, though, if gold continues to slide.
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Ticker 52-week Tuesday Est. ’99 Company symbol High Low Close Change EPS* ASA ASA $24.00 $13.63 $16.25 -$0.56 NA Barrick Gold ABX 23.63 12.88 18.38 -1.19 $0.86 Battle Mountain BMG 6.75 2.19 2.25 -0.19 -0.13 Echo Bay ECO 2.94 1.25 1.38 -0.06 -0.25 Glamis Gold GLG 3.88 1.25 1.88 -0.06 -0.05 Hecla Mining HL 5.31 2.06 2.06 -0.06 -0.14 Homestake Mining HM 15.00 7.50 7.75 -0.44 -0.01 Newmont Mining NEM 30.31 13.25 17.94 -1.69 0.35 Placer Dome PDG 17.88 7.88 10.81 -0.88 0.35
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* Earnings per share
NA= not available
Source: Bloomberg News; Zacks Investment Research; IBES Inc.
