Gold plunged to a 20-year low Tuesday after the Bank of England sold 25 metric tons at a below-market price in the first of several auctions expected before next April.
The bank sold the gold for $261.20 an ounce, raising $209.8 million that Britain will invest in bonds. The government joined other gold holders such as Australia, Belgium and Canada that have shed the metal in favor of assets promising higher returns.
"It was a huge disappointment," said Frederic Panizzutti, head of strategy at MKS Finance, a Geneva-based metals refiner and trader. "People were hoping they would sell above the spot price, and unfortunately they didn't."
Gold for August delivery fell $6.80, or 2.6%, to $257.30 an ounce on the Comex division of the New York Mercantile Exchange, for the biggest decline in almost two years and the lowest closing price since May 1979.
Gold's slump--it's down about a third since early 1996--has dragged the share prices and profits of gold-mining companies down with it.
The Standard & Poor's gold and precious metals index tumbled 6.7% on Tuesday.
Meanwhile, stocks in general gave up early gains to close lower as optimism about second-quarter earnings gave way to profit-taking from last week's extraordinary rally.
The Dow Jones industrial average fell 4.12 points to close at 11,135.12. During the session, the blue-chip index rose more than 97 points above Friday's record close of 11,139.24. That record capped a week in which the Dow advanced 586.68 points.
Broader stock indicators also ended lower Tuesday after a late sell-off. The Standard & Poor's 500 index fell 3.10 points to 1,388.12, and the Nasdaq composite index fell 4.24 points to 2,736.78.
Weakness in the bond market also contributed to stocks' losses. The price of the benchmark 30-year Treasury bond slipped, pushing its yield to 6.03%, up from 6.00% on Friday. Traders often consider bond yields above 6% a threat to stocks, in part because at that level they present a more attractive alternative to stocks.
With the interest rate question settled for the time being, analysts said, investors have turned their attention to corporate earnings. Rosy forecasts had attracted buyers early in the session Tuesday, but analysts said some traders ultimately decided to sell, perhaps worrying that results will miss the mounting expectations of Wall Street.
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.
"We're in a very skittish state," he said. "There's no room for disappointment and great potential for volatility."
Declining issues outnumbered advancers by a 10-9 ratio on the New York Stock Exchange, where trading volume was moderate.
The NYSE composite index fell 0.35 point to 654.77, and the Russell 2,000 index of smaller stocks rose 0.04 point to 456.55.
Among Tuesday's highlights:
* Declining gold stocks included Newmont Mining, down $1.69 to $17.94; Battle Mountain, down 19 cents to $2.25; and Placer Dome, down 88 cents to $10.81.
* Oil stocks were mostly higher as the price of crude oil briefly topped $20 a barrel for the first time since November 1997. Dow component Chevron rose $2.06 to $98.31. Total Fina's unsolicited takeover bid for Elf Aquitaine also helped boost the sector, as Elf soared $16.06 to $90.38.
* 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.
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.
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
* Earnings per share
NA= not available
Source: Bloomberg News; Zacks Investment Research; IBES Inc.