Gold, Oil Higher As Powell Speaks

www.morningstar.ca 5 Feb 03(11:10 AM) | E-mail Article to a Friend By Daniel Grebler

NEW YORK (Reuters) - Gold and oil prices rose on Wednesday as Secretary of State Colin Powell presented evidence to the United Nations Security Council that he said proved Iraq violated the U.N. mandate that it disarm.

Powell played eavesdropping tapes of intercepted conversations between Iraqi officials and displayed satellite photos that Washington says prove Iraq was hiding weapons from U.N. inspectors.

Shortly after Powell spoke, gold for April delivery <0#GC:> on the New York Mercantile Exchange was up $4.10 , or 1 percent, at $384.00 an ounce, off slightly from a 6-1/2 year high ahead of his speech.

Futures hit $390.80 an ounce overnight, the highest level since August 1996.

"There has to be a $50 war premium right now and at a certain stage I think that's got to burst," said a bullion trader. "But all eyes will be on Colin Powell today."

New York crude oil futures were up 57 cents, or 1.7 percent at $34.15 a barrel as Powell spoke, within a dollar of 2-year price highs. Traders fear that war in Iraq could disrupt crude supplies from the Middle East, which pumps a third of the world's oil. Oil prices have risen more than 37 percent since mid-November on the growing threat of military conflict.

On Wall Street, blue chip stocks were higher, with the Dow Jones industrial average up 0.8 percent at 8,080, while the broader S&P 500 index was up 0.7 percent at 854.

U.S. government bonds were weaker but little changed as Powell spoke.

Ten-year notes <US10YT=RR> were down 8/32 to 100-10/32, yielding 3.96 percent, versus 3.93 percent at Tuesday's close. Five-year note yields <US5YT=RR> rose to 2.95 percent from 2.9 percent at Tuesday's close.

The Treasury said earlier it would sell $42.0 billion in five- and 10-year notes next week and would hold more frequent sales of five-year notes.

Thirty-year yields <US30YT=RR> rose to 4.81 percent from 4.8 percent at Tuesday's close.

Oil prices were further strengthened as a government report showed that U.S. supplies of heating oil were heavily drawn down last week by an Arctic blast across much of the nation. World stocks have already been tightened by a 2-month strike in key supplier Venezuela.

European bourses were soft, near 6-year lows as investors weighed the still uncertain outlook for company profits and economic recovery as well as the specter of war.

The FTSE Eurotop 300 index of pan-European blue chips was up 11 points, or 1.4 percent at 795.

Tokyo's Nikkei average closed 0.77 percent higher on strong corporate results and on hopes the Bank of Japan will take an aggressive monetary stance to reflate the economy. The broader TOPIX index edged up 0.12 percent.