Commodities trade cautiously after Bush speech

news.ft.com By Nerma Jelacic in London Published: January 29 2003 13:16 | Last Updated: January 29 2003 14:07

Investors in gold and oil on Wednesday reacted cautiously to the overnight State of the Union address by George W Bush in which the US President continued to beat the war drum.

Mr Bush put US troops on standby in his State of the Union speech. The president of the United States accussed Saddam Hussein of showing "utter contempt" for the UN and international public opinion.

"We will consult, but let there be no misunderstanding - if Saddam Hussein does not fully disarm for the safety of our people and for the peace of the world, we will lead a coalition to disarm him," Mr Bush said.

He added that his Secretary of State Colin Powell would reveal information on Baghdad's weapons of mass destruction to the UN Security Council on February 5.

"This suggests that the decision to wage war has been taken and the case is now being made," said Lawrence Eagles an analyst at GNI commodities brokerage.

Stock markets tumbled on Wednesday morning while the dollar came under further pressure with major commodites also dipping as investors waited for the US to present its case against Mr Hussein to the UN Security Council.

By midday on Wednesday the IPE Brent contract for March delivery was 34 cents lower at $29.93 a barrel, off a close of $30.27 a barrel on Tuesday.

"While we continue to feel that the US will build its case for war against Iraq over the coming weeks, the fact that Powell will present evidence on February 5 could leave the market with little more than conjecture until then," said Mr Eagles.

Investors also kept their eye on the developments in Venezuela where the general strike showed signs of ending.

But Mr Eagles said traders seemed bored with the Venezuelan issue although it seemed increasingly likely that either a deal would be reached to end the strike or production would increase further.

"Outside of Iraq the news is clearly negative, so we look for prices to decline, but do not expect a complete rout," he added.

Gold also showed a guarded reaction to developments in Iraq on Wednesday. Spot gold was trading at $369.50 an ounce in London, unchanged from the late New York fix recorded some hours before Mr Bush's speech.

"Talk of war, especially if supported by fresh intelligence on weapons of mass destruction will keep the gold price supported although the uncertainty of the timetable for military action may delay any move higher for now," said John Reade, precious metals analyst at UBS Warburg

James Moore of the BullionDesk.com said the market was looking over-bought and expected to see some consolidation.

"I think we could fall back to $364 but with the weekend aproaching I wouldn't be surprised if the highs get pushed up to $375-$380," Mr Moore said.

Earlier in the week bullion hit $372.55, its highest level for six years.