Gold closed lower Friday as concerns over a slowing world economy and declining energy use helped ease inflation worries.
The latest figures from the Economic Cycle Research Institute's (ECRI) Weekly Leading Index, which tracks indicators sensitive to economic growth, showed a drop of 0.4% for the period ending Aug. 4, vs. an increase of 0.2% in the prior week.
"What is most significant is that it's been worsening for months," says Anirvan Banerji, research director at ECRI in New York. "And it underscores the progressive dimming of U.S. economic growth prospects."
Three times out of four, a slowdown in growth is followed by a reduction in inflation, he notes. But that also means that 25% of the time it might not work that way.
"There are times, like in the late 1970s, where you had strong inflation and weak growth," he says.
Contracts for December delivery of gold lost $1.60 to close at $644.30 an ounce on the Comex division of the New York Mercantile Exchange, or Nymex.
The bullion ETFs followed the metal price lower, with shares of
streetTRACKS Gold Shares
iShares Comex Gold Trust
both moving down about 0.5% by midafternoon.
UBS upgraded its rating on
to buy from neutral, but softness in the metal weighed heavily on the stock's price, recently trading down about 2%.
Other gold stocks, such as
Freeport-McMoRan Copper & Gold
, were also being dragged under by the weak bullion price, each losing less than 2% in the afternoon.
Among the base metals, Brazil's massive iron-ore miner
latest bid for Canadian nickel miner
, offering $15.1 billion in cash, hoping to beat out rivals
Shares of Phelps were trading up almost 3%, and Teck was gaining 3.5%, both buoyed by optimism that their bids for Inco might fail now that CVRD has entered the fray.
Also in base metals, Prudential upped its rating on diversified miner
to neutral from underweight and raised its stock price forecast to $210. The stock was, however, down 1.7% at $202.
Meanwhile, labor strife continues at the Escondida copper mine as the strike, which has lowered production capacity by 60%, entered its fifth day.
Copper traders were interpreting the resumption of management-worker talks as a positive for improved supply, and September contracts for the red metal lost 14.8 cents to close at $3.47 a pound on the Comex, although not everyone was so sanguine.
"They had to declare force majeure within one day of the strike, which started Monday," says Catherine Virgia, a base-metals analyst at specialty commodity advisor CPM Group in New York. Virgia noted that the mine didn't have enough concentrated copper ore to fulfill its customer obligations. She expects prices to reverse and start heading up soon due to supply tightness.
Co-owner with Rio Tinto of the Escondida copper mine in Chile,
was also losing, off 0.5%.