Commodities-Gold slides, oil rises on Powell speech

www.forbes.com Reuters, 02.05.03, 5:45 PM ET

NEW YORK (Reuters) - Gold prices fell prey to profit-taking after hitting 6-1/2-year highs Wednesday while oil was lifted by a steep fall in U.S. stockpiles and Secretary of State Colin Powell's speech to the U.N. to provide evidence he said proved Iraq hid banned weapons from U.N. inspectors. COMEX gold futures ended lower as Powell laid out the U.S. case at the U.N. Security Council that Iraq had made no effort to disarm as required by U.N. resolutions to avoid war. "I guess it's a classic example of buying the rumor and selling the news," said Drummond Gill of bullion dealer ScotiaMocatta in Toronto. "I think the jury is still out. I think he did a good job of trying to make the case." COMEX April gold ended $2.70 lower at $377.20 an ounce. Bullion was also pressured by a bounce in the dollar off a four-year low and a healthy rise in the stock markets, which could not hold onto the gains and ended the day lower. "Markets don't go in straight lines ... some periodic profit-taking has to be expected," said Kevin Crisp, precious metals analyst with Dresdner Kleinwort Wasserstein. "But I don't sense a wholesale exodus. You get froth on the top of a market and it gets blown off," he added. Gold has gained $30 an ounce, or 8.6 percent, since the start of the year, bolstered by fears of a war with Iraq, jitters over North Korea's nuclear ambitions and weakness in the dollar. Overnight, Japanese investors shoveled more money into gold futures on the Tokyo Commodity Exchange (TOCOM), sending yen-based contracts to 10-1/2-year highs in record turnover. In a high stakes address to the 15-nation Security Council, Powell appeared to change few minds, with envoys from France, Russia, China, Germany, Mexico, Angola, Guinea, Syria and Cameroon expressing doubts about war and hoping inspections would continue. However, staunch ally Britain and foreign ministers from Spain and Bulgaria were forceful in endorsing his presentation while Chile and Pakistan took a more neutral position. Powell, in a bid to win over anti-war sentiment at home and abroad, said Iraq gave orders to sanitize documents referring to "nerve agents," and cleaned up chemical weapons sites. The Bush administration argues that war may be the only way to stop Saddam Hussein's defiance of U.N. resolutions. NYMEX crude oil futures rose 1 percent following Powell's U.N. speech and government data showing a steep fall in U.S. stocks of heating oil, as freezing temperatures stoked demand and fuel distributors began to hoard supplies ahead of a possible war. "I don't think that Powell was persuasive enough to convince, let's say, the French. That may lead to the U.S. having to go on its own or with a small international group," said Tim Evans, senior market analyst at IFR-Pegasus. NYMEX March crude oil settled 35 cents higher at $33.93 a barrel, after hitting a high of $34.28. March gasoline was up 3.09 cents at $1.0315 cents a gallon, while March heating oil was up 3.21 cents at 99.40 cents a gallon. Prices were supported by news of a big drop in U.S. fuel stocks -- already depleted by a 65-day opposition strike in Venezuela, which normally supplies over 13 percent of U.S. crude and refined product imports. U.S. heating oil stocks shrank 11 percent after a long cold snap in the high-consumption Northeast region, a government report showed. Stocks have been depleted by cutbacks in U.S. refinery production as high crude oil prices slash plants' profit margins. "Without the flexibility that ample inventories provide, oil markets now are as tight as a fully stretched rubber band. Whether the rubber band breaks or not will largely depend on the pace of demand in coming weeks," the EIA said. Distillate stocks, including diesel fuel and heating oil, dropped 10.3 million barrels, the second largest weekly drop on record. Distillate fuel demand recorded the highest weekly average ever, the Energy Information Administration said. "That's far above what was expected from weather," said Jim Ritterbusch, president of Ritterbusch and Associates in Illinois. "Distributors are stocking up in advance of a war." (Reporting by K.T. Arasu, edited by Gary Crosse; Reuters Messaging kumarasamy.thennarasu.reuters.com@reuters.net; 312 408 8720)