Author: lindsay

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March 18, 2008

U.S. gold futures finished slightly higher Tuesday on the back of inflation fears spurred by a bounce in crude oil prices, after heavy liquidation erased sharp initial gains that took the market to record highs on Monday.

Adam Hewison, president of INO.com in Annapolis, Md., said he would not be surprised to see some backing and filling in gold after the Monday pullback.

"Psychologically, the perception of the market has been somewhat dampened with the action yesterday," Hewison said. "If we close lower than we did last Friday, then certainly there are going to be a lot of question marks since we might have seen a top on the gold."

The active gold contract for April delivery on the Comex division of the New York Mercantile Exchange settled up $1.70 at $1,004.30 an ounce. It traded between a session high of $1,004.30 and a bottom of $994.80.
On Monday, panic buying amid turmoil in global financial markets due to a fire sale of Bear Stearns initially sent gold futures to a record high of $1,033.90. However, the April contract finished at $1,002.60 an ounce due to full-scale selling late in the session.

Hewison said that $960 an ounce would be a major support area for gold. But he expects gold to quite easily pull back below $1,000.

Rising crude oil prices also boosted gold, which is used as a hedge against inflation. U.S.
crude futures settled $3.74 higher at $109.42 a barrel after falling nearly $7 on Monday.

Comex estimated final gold futures volume at 161,956 contracts and gold options at 19,482 lots. Total turnover in Chicago Board of Trade electronic 100-ounce gold futures was 20,513 lots at 3:02 p.m.

After Tuesday's pit trade session, the Federal Reserve slashed a key U.S. interest rate by three-quarters of a percentage point, a substantial cut but smaller than many in financial markets had expected, as part of an effort to hold off a deep recession and financial meltdown.

"The committee expects inflation to moderate in coming quarters, reflecting a projected leveling out of energy and other commodity prices and an easing of pressures on resource utilization," the U.S. central bank said.
Comex May silver closed down 34.0 cents, or 1.7%, to $19.960 an ounce. It traded between a bottom of $19.850 and a high of $20.510.

The Nymex platinum contract for April delivery dropped $5.40 to close at 1,968.00 an ounce.

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Reuters is a registered trademark of Reuters.

By ADAM SCHRECK

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NEW YORK (AP) — Oil futures surged to close at a new record Tuesday as traders focused on supply concerns and a bullish stock market rather than renewed signs of a shaky U.S. economy.

Crossing the psychologically significant $100 mark once again — oil prices previously crossed that hurdle last week — in itself may have helped fuel the rally by triggering computer programs set to buy at certain levels and enticing new speculators into the market, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

"You see additional buying among people who think they're missing something," he said. "Any time you move above ($100 a barrel), you're going to ignite some fresh buying."

Light, sweet crude for April delivery jumped $1.65 to settle at $100.88 a barrel on the New York Mercantile Exchange. At one point in the session, prices surged as high as $101.15.

Investors who recently were selling on weak economic data seemed to take a spate of bad news in stride.

The Conference Board, a business-backed research group, reported its Consumer Confidence Index fell to the lowest since February 2003, far below what analysts had been expecting, indicating that consumers might continue to curb their spending in the coming months.

Meanwhile, the Labor Department reported that wholesale inflation jumped 1 percent in January, more than twice what analysts had been forecasting. That report, coupled with the consumer confidence index, pointed to an economy that is slowing even as prices are rising.

And Standard & Poor's added to homeowners' angst when it said its quarterly home price index tumbled 8.9 percent in the final quarter of 2007 — the indictator's sharpest decline in its 20-year history.

But traders in both the energy market and the stock market, which also advanced, seemed largely unfazed.

"We're seeing a solid tone to the stock market," Ritterbusch said. "I think the oil market is using the stock market as a proxy for future economic activity."

Last week, March oil rallied to a new settlement record of $100.74 and a new trading record of $101.32 before the contract expired.

Hedge funds looking to cover future positions and foreign buyers, who because of the weak dollar can still lock in oil prices at a relative bargain, may have helped accelerate the day's buying, said Adam Hewison, president of INO.com, a financial Web site that specializes in futures trading.

"In euro terms, oil is not that expensive, and it's likely to go even higher," Hewison said.

Also supporting prices were concerns about supply disruptions from unrest in Iraq, a major oil exporter, and warnings by Iran against further international sanctions. Turkish ground forces pushed their offensive against Kurdish rebels deeper into the north of Iraq, seizing seven guerrilla camps, officials said.

Oil has risen in recent days amid an increase in speculative buying, with some traders believing that global demand will be high enough to support higher crude prices even if the U.S. economy is slowing. That thesis will be put to the test Wednesday, when analysts expect the U.S. Energy Department's Energy Information Administration to report that the nation's crude stocks rose for the seventh week in a row.

The government inventories report also is expected to show supplies of distillates, which include heating oil and diesel, fell by 1.8 million barrels last week, according to a Dow Jones Newswires poll of analysts. Cold weather across the Midwest and Northeast has also helped push heating oil prices higher.

On Tuesday, heating oil futures gained 2.97 cents to settle at $2.8150 a gallon, after earlier setting a new trading record of $2.8188 a gallon.

Gasoline prices rose 0.8 cents to settle at $2.5505 a gallon. Gas prices at the pump rose to $3.142 from $3.137 Monday, according to AAA and the Oil Price Information Service.

The EIA report also is expected to show that crude oil stocks rose last week by 2.4 million barrels, which would be the seventh straight week of gains. Gasoline inventories are expected to rise by 400,000 barrels.

Natural gas futures rose 2 cents to settle at $9.206 per 1,000 cubic feet. Earlier, Gazprom, Russia's natural gas monopoly, again threatened to cut supplies to neighboring Ukraine, according to Russian news agency reports.

In London, Brent crude futures rose $1.78 to settle at $99.47 a barrel on the ICE Futures exchange.