Monday Nite Wank
METALS STOCKS
Gold futures surrender $600 mark
Silver posts slight gain; copper prices at all-time high
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By Myra P. Saefong, MarketWatch
Last Update: 4:23 PM ET Apr 11, 2006
SAN FRANCISCO (MarketWatch) -- Gold futures closed below $600 an ounce Tuesday, reflecting traders' wariness about the metal's lofty level, but silver inched higher and copper prices remained at a record with concerns about Iran's nuclear activities helping to fuel buying.
"The buying over the last two days [in gold] has been in Asia, with the Europeans and Americans acting a bit nervous," said Peter Spina, an analyst at GoldSeek.com.
"Gold is testing the waters around $600, but with oil near $70 and strong demand out of Asia, gold will have difficulty moving much lower," he added.
Gold for June delivery climbed as high as $605.60 an ounce on the New York Mercantile Exchange after tapping $608.40 in electronic dealings -- futures levels not seen since January 1981. The contract closed Tuesday at $599.40 an ounce, down $2.40 for the session.
On Monday, gold futures closed above $600 for the first time in more than a quarter century, after the New Yorker magazine reported that the United States is stepping up preparations for a possible air attack on Iranian nuclear facilities, which may involve the use of nuclear weapons against fortified underground sites. The Washington Post carried a similar weekend report.
President Bush said that the stories were merely "wild speculation." See full story.
"Iran has moved to the front pages of investors' attention," said Spina. "It is clear Iran is provoking the United States." This much "is reflected in the price of gold where investors seek refuge in time of instability."
Citigroup analyst John Hill called the recent metals strength a resumption of the "metals meltup" seen late last year, marked by copper, nickel and gold breaking to record levels or recent highs.
Along with political concerns, metals are finding support in investment inflows, demand and supply-side outages, "while technicians and momentum players have seemingly hijacked the entire sector," Hill told clients.
Set for a pullback?
At this stage in the rally, metals might seem ripe for consolidation, according to Hill, who remains upbeat on the sector's prospects.
"We see a compelling case for higher metals earnings into 2007 and multiples expansion along the way," he said.
Earlier, Merrill Lynch increased price targets for base metals, arguing that a structural shift in the cost base of producers has raised the minimum price needed to justify new project approval.
While conceding that a "large" percentage of these increases in operating cost increases are cyclical in nature, Merrill analyst Daniel Fairclough said that he estimates about 25% of the increased costs are structural, such as for energy and labor, and "will prove difficult to remove in the long term."
Merrill's lifting long-term forecasts for copper prices by 20%, aluminum prices by 15% and nickel prices by 23%.
"Consecutive closes above $600 will certainly do wonders for the outlook for gold, and consecutive closes above $13 in May silver would keep that market on track as well -- in spite of its severe overbought condition," said Dale Doelling, chief market technician at Trends In Commodities.
Copper shine
"May copper seems to have its sights set on the $3 mark," added Doelling.
Indeed, "there seems no stopping copper with the rally being fueled on a high-octane mixture of supply concerns, fund buying and roaring momentum," said William Adams, an analyst at BaseMetals.com.
"Supply concerns seem to be coming from all directions, from ongoing strikes, geopolitical concerns in various producing countries and even concerns over potential shortages of water in producing countries, not to mention the base metals' adoption as a substitute currency vs. the dollar," he wrote in a note.