Commodities-Gold slumps but oil ends firm on Iraq

www.forbes.com Reuters, 02.18.03, 5:12 PM ET

NEW YORK (Reuters) - Gold closed sharply lower on Tuesday, erasing all of its gains for 2003 as the dollar rallied and many investors bet that the timetable for any U.S.-led attack on Iraq would be pushed back. But oil markets held their focus on war fears with crude oil prices setting 29-month highs late after the United States said it would propose a new United Nations resolution on Iraq but was prepared to move against Baghdad without one. In other commodity trading, grains closed quietly mixed in Chicago. But coffee, cocoa and sugar trading in New York never got started as snowstorms prevented many traders from reaching the New York Board of Trade. At the COMEX, gold futures fell to a seven-week low, playing catch-up with overseas markets after U.S. financial markets were closed on Monday for Presidents Day. Gold for April delivery closed $7.90 lower from Friday at $344.30 an ounce after trading as low as $343.00, the lowest since December 31. Estimated volume was 40,000 contracts. "Investors are going to the exits and booking their profits right now," said the head of one bullion trading firm. "If we break $340, then $300 will be the target." Spot gold bullion closed at $343.45/344.45, down from $350.50/351.50 at Friday's New York close. Tuesday afternoon's London spot gold reference price was fixed at $344.10. Conditions were extra thin on Tuesday with many COMEX traders prevented from returning to work as New York dug out from a blizzard that dumped up to 2 feet of snow on the city. The storm earlier prompted the New York Board of Trade to call off trading on Tuesday in its five agricultural products: cocoa, coffee, sugar, cotton and orange juice. Aside from the lower gold trend overseas on Monday, other factors worked against gold demand on Tuesday. The dollar has edged up from four-year lows against the euro, eroding the bullion buying power of European investors. At the same time the Dow Jones industrial average was up 132 points at 8,041, diverting money from gold. Gold futures had surged 12 percent this year, reaching a 6-1/2-year high this month at $390.80 as geopolitical jitters, the weak dollar and spiking oil prices kept investors interested in the precious metal as war insurance. "Just the hint of a possible delay of a war with Iraq was enough to turn investor psychology negative and to create an absolute avalanche of selling pressure," Leonard Kaplan, president of Prospector Asset Management, wrote on Tuesday. At an emergency summit of European Union diplomats in Brussels on Monday, a relatively positive assessment of Iraqi cooperation by U.N. weapons inspectors last Friday and support for France, which wants more time for inspections, blunted a U.S.-British drive for a new U.N. resolution authorizing war. April platinum at the New York Mercantile Exchange also saw a wave of profit taking, tumbling $26.20 to close at $653.20 an ounce. Platinum's recent advance to 23-year highs on hopes for new fuel cell technologies made it ripe for profit taking given gold's decline and the thinned-out ranks of traders. NYMEX crude oil, however, ended just below new 29-month highs after the United States said it would push for a new U.N. resolution on disarming Iraq and was prepared to move ahead against Baghdad even without one. "We don't need a second resolution. It's clear this guy could even care less about the first resolution. He's in total defiance with (Resolution) 1441. But we're working with our friends and allies to see if we can get a second resolution," President George W. Bush told reporters on Tuesday. NYMEX crude oil for March delivery on Tuesday peaked at $37.05, the highest level since September 2000, and barely four dollars below the highs of the 1990-1991 Gulf War. March crude closed 16 cents higher at $36.96 a barrel. In London, Brent North Sea crude rose 63 cents to $32.55 a barrel. News that the Pentagon had ordered a further 28,000 troops to the Middle East Gulf region as the United States builds a military force of more than 200,000 for a possible war with Iraq helped fuel a flurry of buying in crude near the close. Traders fear military conflict in Iraq could disrupt oil flows from the Middle East Gulf, which pumps nearly a third of the world's daily crude exports. An 11-week strike in Venezuela has already depleted U.S. oil supplies. NYMEX March heating oil closed higher, buoyed by demand from the blizzard in the Northeast. March rose 0.47 cent a gallon at 106.54 cents, while other contracts closed lower on profit taking. March gasoline fell 2.78 cents at 99.45 cents. At the Chicago Board of Trade, grain prices closed narrowly mixed. Soybean prices edged higher on talk of inquiry from China while nearby wheat prices firmed on tight supply. Corn prices eased as winter storms improved moisture for planting. March soybeans closed one cent higher at $5.74 a bushel and March wheat rose 1-1/4 cents at $3.35-1/2. But March corn closed 2 cents lower at $2.38-1/4.