Gold Posts Big Gain on News of European Cap
Gold finally regained a little shine Monday, staging its biggest rally in more than 14 years after European central banks unexpectedly pledged to restrict their sales and lending of the metal.
Meanwhile, the stock market closed mostly higher, struggling back from last week’s deep sell-off. The Dow industrials inched up 24.06 points to 10,303.39; the Nasdaq composite gained 0.8%.
In commodity markets, near-term gold futures in New York soared $14 to $281.80 an ounce, the biggest one-day gain since March 1985.
European central banks, which hold half of the world’s central bank reserves, said they would cap annual gold sales at 400 tons for five years.
Significantly, the banks also said they will curtail leasing and derivatives use of gold reserves.
Gold sales by several European central banks--and plans for more--had helped drive gold to 20-year lows in recent months.
With Monday’s announcement, “a significant portion of the downside risk has been removed” from the gold market, said Peter Ward, gold analyst at Lehman Bros. in New York. “A fire-sale liquidation by major holders looks like it’s not going to happen for a while.”
Participating in the agreement were the Bank of England, the Swiss National Bank, the Swedish Riksbank and those of the 11 countries that adopted the euro as their currency in January.
“The purpose of this action is to give certainty to the gold market,” said Wim Duisenberg, European Central Bank president. Central banks that hold “a substantial part” of their reserves in gold also are concerned about “keeping the value of that gold where it is.”
Still, traders cautioned that central banks that are not part of the plan, such as Russia and Venezuela, still could unload gold onto the world market. Denmark said it wasn’t party to the agreement, although it has no plans to sell.
On Wall Street, gold mining shares were the hottest stocks. But beaten-down technology stocks rebounded after some positive comments by Abby Joseph Cohen, the chief investment strategist at Goldman, Sachs & Co.
At a conference in Washington last weekend, Cohen said U.S. stocks in general are “modestly undervalued.” She specifically recommended “main-line” technology stocks, citing their “enormous earnings growth, very high returns on equity and high profit margins,” which suggest many are likely to “perform very well.”
Overall, winners topped losers by about 3 to 2 in moderate trading on the New York Stock Exchange.
In the bond market, yields rose after tumbling last week. The 30-year Treasury bond ended at 6.01%, up from 5.96% Friday.
In Taiwan, the stock market reopened after the recent killer quake. The main share index closed off 2.7% in thin trading.
Among Monday’s highlights:
* Gold stocks surging with bullion included Barrick Gold, up $3.94 to $24.13, a 20% rise; Placer Dome, up $3.63 to $15.44, a 31% rise; Newmont Mining, up $4.88 to $27.81, a 21% rise; and Echo Bay, up $1 to $2.44, a 69% gain.
* In the tech sector, Intel jumped $2.52 to $78.19, Microsoft gained 50 cents to $91.44, Sun Microsystems rose $3.75 to $93.94 and Motorola leaped $3.63 to $86.50.
* New stock issues pricing their offerings late Monday included Airgate PCS (ticker symbol: PCSA), at $17 a share; Medscape (MSCP), at $8; Foundry Networks (FDRY), at $25; and FreeShop.com (FSHP), at $12. All will begin trading today on Nasdaq.
Market Roundup, C13
Gold chart, C17
