europe.cnn.com Thursday, February 6, 2003 Posted: 0018 GMT

LONDON (Reuters) -- Oil prices held firm but gold eased after U.S. Secretary of State Colin Powell delivered his key address on Iraq to the United Nations Wednesday.

Oil prices also found support from U.S. inventory data showing a steep fall in stocks of U.S. heating oil, as freezing temperatures stoked demand and distributors began to hoard supplies ahead of a possible war.

In London, benchmark Brent crude for March delivery rose 27 cents to $31.36 a barrel, while U.S. light crude rose 22 cents to $33.80.

In a presentation to the U.N. Security Council, Powell argued that Iraq had concealed equipment from its suspected weapons programs to flout the U.N. inspectors searching the country for evidence of chemical, biological and nuclear arms.

Traders and analysts said Powell's address was largely as expected and, on the oil markets, some profit-taking set in after his speech, taking Brent crude prices off a session high of $31.80.

Gold prices reel

In the gold market, profit-taking sent prices reeling from 6-1/2 year highs in volatile trading after Powell spoke.

New York gold futures had hit their highest level since August 1996 on safe-haven buying beforehand.

At the COMEX division of the New York Mercantile Exchange, gold for April delivery fell more than $13 from its peak, ending down $2.70 at $377.20 an ounce. It topped at $390.80 overnight and dipped to $373 after Powell spoke.

"I guess it's a classic example of buying the rumor and selling the news," said Drummond Gill, head of spot trading at 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."

Spot gold hit $388.50 and closed Wednesday at $375.60/6.60, off from $378.65/9.15 at Tuesday's close. London bullion dealers fixed the afternoon spot reference price at $382.10 an ounce.

Steep drop

Oil prices were kept firm by data showing a steep drop in stocks of U.S. oil products.

"You could follow these numbers for a decade without coming across a set that are quite as stark as these," said J.P. Morgan's Paul Horsnell.

"The U.S. oil products systems is on the verge of an implosion and it will take quite some time to get things back to normal," he added in a research note.

Distillate stocks, including diesel fuel and heating oil, dropped by 10.3 million barrels to 112.1 million barrels in the week to last Friday, according to U.S. government data.

"That's far above what was expected from weather," said Jim Ritterbusch, president of Ritterbusch and Associates. "Distributors are stocking up in advance of a war."

Overall crude stocks fell slightly, according to industry figures, but rose slightly, according to government statistics as a two-month-old strike in Venezuela, the world's fifth largest oil exporter, relinquished its stranglehold.

Venezuela output

Venezuela's striking oil workers said on Tuesday crude output was 1.2 million barrels per day, although President Hugo Chavez, whom the strikers are trying to force to resign, said output was approaching 2.0 million bpd.

In January, the Organisation of the Petroleum Exporting Countries agreed to increase output to help compensate for the effects of the Venezuelan strike.

But last weekend, OPEC ministers warned that as Venezuelan crude was coming back onstream, there could be a supply glut by the second quarter when demand traditionally drops off with the end of cold weather in the northern hemisphere.

Some analysts predict that the war premium built into prices will quickly melt away if the war proves short-lived.

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.

reuters.com Wed February 5, 2003 09:25 AM ET By Justine Trueman

LONDON, Feb 5 (Reuters) - Gold prices rocketing to six-year highs have left shares in mining companies gasping to catch up and some hopelessly undervalued, JPMorgan Fleming Asset Management's veteran commodity fund manager said on Wednesday.

"It's only over the past few weeks that people have begun to pay attention to the fact that this area is doing very well," Ian Henderson, manager of the 34.1 million pounds ($56.4 million) JPMF Natural Resources Fund, told Reuters.

"We're so far away from (the end of the run in gold prices). I can find companies on PEs (price to earnings multiples) of four times in the mining sector. As long as I can find these companies hopelessly undervalued, (prices) will keep going up," he said.

The price of gold has leapt 37.5 percent since the end of 2001. Spot gold was quoted at around $380.50 per ounce at 1420 GMT and is up some ten percent since the start of this year, fuelled by fears of an impending U.S.-led war with Iraq and dollar and equity market weakness.

Henderson, who has been investing in commodities for JPMF -- which has about $500 billion of assets under management worldwide -- for the past 10 years, believes gold has broken firmly out of a bear market range and could rise further.

"People had become very set in their opinions and it takes a long time for them to change their minds. That is the plus as far as I'm concerned, that people haven't recognised that this has been a bull market and therein lies the opportunity," he said.

POTENTIAL GAINER

When gold was last around $375 an ounce in 1996, gold stocks were about double their current price on average, he added.

Henderson picked out Cananda's Barrick Gold Corp , the world's number two gold producer, as a potential gainer, given its share price fell 4.3 percent during 2002.

The stock is up about five percent in 2003, well ahead of the S&P/Toronto Stock Exchange Canadian gold index which is flat, up just 0.2 percent over the same period.

So far, Henderson's bullish views on commodity prices have paid off. According to figures from fund tracking firm Lipper, a Reuters company, his JPMF Natural Resources fund is up 18 percent in the last year and 44 percent over three years.

The fund has a 50.5 percent weighting in gold stocks such as Harmony Gold Mining Ltd , Gold Fields Ltd and Randgold Resources Ltd .

It also has 23.5 percent of the fund's holdings in energy companies and said commodity stocks had plenty of room to run.

Henderson said a fall in gold jewellery sales in the last year would not dampen gold prices because of pent-up demand from Asian central banks, particularly China's, and because gold mining companies continue to unwind their hedging positions.

"Eighty percent of gold is used for jewellery and there has been a decline in demand, but it has been more than made up for by the industry buying back gold," he said.

He also thinks investors are underestimating the influence of China on the world economy.

He said China was becoming a significant influence on demand for all commodities from gold for its central bank reserves to oil and base metals. In December China bought five percent of one year's gold production, worth about one billion dollars.

Henderson said both gold and oil reserves were benefiting from increased demand and restricted supply.

Demand for oil is strong from countries like China, which is becoming increasingly motorised, while oil reserves have been affected by strikes in Venezuela.

In January the Venezuela strikes cut oil exports to a fifth of November volumes. Meanwhile there are concerns supplies could be further affected by a war with Iraq.

"I am optimistic about energy especially as we enter this period of uncertainty about Iraq, because non-strategic stockpiles of oil and oil products are below the bottom of their five year band," said Henderson.

"In addition energy sector companies involved in production have seen share prices fall when the oil price has been going up," he added.

www.bankrate.com By Laura Bruce • Bankrate.com

There's a little bit of gambler in most investors. After all, if you invest in stocks or mutual funds, you're taking on some risk.

So, while you're waiting for the stock market to quit behaving badly you might consider wagering, I mean investing, some money in a futures contract on Saddam Hussein's future.

Tradesports.com, www.tradesports.com based in Dublin, Ireland, has come up with a way to combine betting and investing.

"Tradesports is an exchange," says John Delaney, CEO. "We don't post any odds or make any book. Everything on the site is posted by other traders of the exchange. We provide a way for people to do futures contracts on issues."

One of the hottest futures contracts on the site is whether Saddam Hussein will still be the president of Iraq after March 31, 2003. A similar, more expensive, contract is available for June 30. A December 2002 contract expired unexercised since Saddam remained in power. If he's still top dog at the end of June, a fourth futures contract will be issued for Sept. 30. Continued below

"About 30,000 contracts will have traded for the three Saddam contracts; it's very popular." Delaney says. "When those chemical warheads were found, the market reacted very quickly. The probability of him being gone, assigned by the market, went up 10 percent, to 40 percent. As news comes out it's quickly assimilated by the traders."

"The current contract -- will Saddam be in power after March 31 -- is listed on a zero to 100 scale. If he's gone by the end of March that contract will settle at 100. If he's still president, the contract settles at zero."

Chris Cooper, a Toledo, Ohio, certified financial planner, lends a hand in explaining futures contracts.

"In investing, you win and lose together. You could have bought WorldCom when the stock was doing well and the company was doing well. But now the stock is down to 6 cents; you're not doing well and neither is the company.

"In commodities there's a winner and a loser. You think it goes up and the other guy thinks it goes down. One will be right, the other will be wrong.

"We've always had a bartering society. You trade corn for musket balls, chickens for pigs. Now we formalize it with commodities to represent the delivery of goods or services in the future. We have not only physical commodities such as oil and grain, but financial assets such as stocks and bonds. Here is a tongue-in-cheek sports marketplace that looks like a commodities exchange."

If betting on Saddam's future isn't your cup of tea, Tradesports lets you take positions on other current-event issues such as whether President Bush will win re-election, who will be the Democrats' candidate, who will win the Oscars and a full slate of sports bets.

When the Federal Open Market Committee gets busy adjusting rates again, Tradesports will offer three contracts; a change in bias, a move up or down by 25 basis points; and any move at all. Wheee!!

"It's a novelty bet, a lot of sports books offer bets on politics. It's not too uncommon. But I don't know of anyone else doing a proposition on Saddam Hussein," says Ashley Lang of Gambling Times magazine.

"They're not asking whether he'll be violently taken over, it's just a matter of whether he'll be the leader of Iraq. He could be out for a number of reasons -- steps down, or taken out of power by the U.S. or other forces."

But what if the U.S. and allied forces attack Iraq? Would Tradesports pull the contract when bloodshed begins?

"That's one of the trickiest questions for me to answer in an abstract way," says Delaney. "If you exclude what's happening in Venezuela regarding oil, the oil contract is really a Saddam Hussein contract. If there's bloodshed would people stop trading defense stocks or oil? I don't think we could and I don't think we should. But we'll always be respectful of what's going on in the world."

When you open an account with Tradesports and fund it, any money you put on a futures contract is frozen. If you win, money from the loser's account will flow seamlessly into your account, according to Delaney.

Of course it will flow seamlessly out of your account if you lose.

If you close your account or want a portion of the money that's in it, Tradesports sends a cashier's check. Delaney says accounts that hold more than $5,000 are paid interest.

If this seems like just another way to lose money, it probably is. Treat it like the lottery, worthy of a small part of your entertainment budget if you're so inclined.

-- Posted: Feb. 5, 2003

www.forbes.com Jerry Flint, 02.17.03, 12:00 AM ET

It's easy to appreciate the drive for lower costs. The auto industry is terribly competitive. But are labor costs all that important? The most successful vehicle makers are foreign, and they are expanding here. Globalism--also known as the hunt for lower wages--continues apace in the auto industry. Move the work to Canada, where the cheap currency and government-paid health care lower labor costs by a third. Move it to Mexico. Move it to China, where wages are really low. General Motors (nyse: GM - news - people ) will build a new sport utility vehicle, the Equinox. The six-cylinder engine and some other parts will come from China and go to a Japanese-run assembly plant in Ontario. That will save money for sure.

In fact, all Chrysler's PT Cruisers come from Mexico, while Chrysler's new Pacifica wagon and many of its minivans come from Canada. Ford gets all its Crown Victorias from Canada. New York's cab drivers and just about all our police use them.

Partsmakers try even harder to ship work abroad to low-wage countries because they are under enormous price pressure from their automaking customers. Delphi (nyse: DPH - news - people ), the giant partsmaker spun off from General Motors, is the largest employer in Mexico.

It's easy to understand the drive for lower costs. The auto world is terribly competitive. But are automaker direct-labor costs, which account for 8% of a car's price, all that important? The most successful vehicle makers today are foreign: Toyota, Honda, BMW, Mercedes, Nissan and Hyundai. What are they doing? Expanding their manufacturing here.

Nissan (nasdaq: NSANY - news - people ) is building a new plant in Mississippi to build big pickup trucks. The plant isn't in China or Bangladesh. Toyota (nyse: TM - news - people ) is going to announce a new truck plant in a couple months for Texas, not Romania. Honda (nyse: HMC - news - people ) and Mercedes (nyse: DCX - news - people ) are expanding in Alabama, and Hyundai will build a new plant there. BMW is expanding in South Carolina.

Yes, the foreigners have advantages when they build here. They avoid protectionism. They get huge subsidies from those southern states for their plants. And while they pay Detroit wage scales, their nonunion workers are younger, don't get the top rates and aren't collecting pensions yet.

But the point is they wouldn't be building here if it weren't a good place for manufacturing--if, that is, they couldn't get high quality and build at competitive costs. I'm not a fool. I understand Detroit's global thinking: They want not only to lower labor costs but also to spread costs with similar design and engineering for products sold across the world. Building abroad also creates a presence in countries that will in time become good markets, like Korea. And the union and the environmentalists and the lawyers make it tough to do business in the U.S.

Detroit will never dominate the automobile world as it once did. It will never even dominate the U.S. market as it once did. But carmakers don't have to go bankrupt like steel companies or move away like textile companies. The U.S. still is a fine place to manufacture vehicles. What counts is not where the vehicle is built or what the labor costs are. What counts is how good the car or truck is. Americans are proving every day that they will pay more for a vehicle if they think it's better.

Nothing is written in stone in the auto industry, neither the success of the foreign manufacturers nor the decline of Detroit. There are no quitters in this business. At the Detroit Auto Show in January General Motors showed an array of production vehicles coming out over the next 30 months that could lead to a real resurgence. Naturally, the competition from the Japanese and Germans is fierce. And the enemies of the automobile are on the attack. They talk of how cars and trucks pollute (not really, not anymore), how they warm the Earth (maybe, maybe not), how they make us slaves to the oil terrorists (though most of our oil comes from home or Canada, Mexico and Venezuela) and how SUVs kill almost everybody in sight (not true).

With this kind of pressure it's good to have lots of workers at home who vote. This type of thinking might be old-fashioned. Possibly in the future our jobs will consist of moving little electronic bits on computer screens, and manufacturing will be done only in the Third World.

But I can't help recalling an exchange that took place a half-century ago. It was after World War II. A Ford (nyse: F - news - people ) manager was showing off a new Ohio plant to Walter Reuther, head of the United Auto Workers. The manager pointed at the row after row of robotic machines running without workers. He laughed and said something like, "Who's going to join your union?" Walter came back with, "Who's going to buy your cars?"

Jerry Flint, a former Forbes Senior Editor, has covered the automobile industry since 1958. Visit his homepage at www.forbes.com/flint.