Gold Leads Metals Lower

The June contract is around $626 an ounce.
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Updated from 11:22 a.m. EDT

Gold led other metals lower Monday as crude oil prices retreated from $75 a barrel, but the pullback was limited as the dollar slumped and geopolitical tensions remained high.

Gold for June delivery finished down $11.60 at $623.90 an ounce.

Among other metals, silver saw the sharpest decline, with the May contract losing $1.17, or 9%, to $11.90 an ounce. Silver has been rallying even more than gold in recent weeks, amid expectations that a soon-to-be-launched exchange-traded fund will boost demand for the metal. The fund, much like the

streetTRACKS Gold

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ETF, should make investing in the commodity easier for retail investors.

Copper for May delivery dropped 2.95 cents to $3.09 a pound, after touching a new record high at $3.18 overnight.

The bull run in gold and metals prices was interrupted by a wave of profit-taking on Thursday of last week, after gold hit a 25-year at $649 an ounce. It seemed to be back on track on Friday as crude oil reached a record $75 a barrel.

But on Monday, Saudi Arabia oil minister Ali al-Naimi said that members of the Organization of Petroleum Exporting Countries were keeping the market well supplied with crude oil.

In recent action, crude oil for June delivery was losing 87 cents, to $74.13 a barrel.

Tensions over Iran's nuclear ambitions pushed crude futures above $75 last week, al-Naimi noted. And these tensions remain high as the U.N. Security Council has set an April 30 deadline for Tehran to stop its nuclear program.

Iran, the world's fourth-largest producer of crude oil, refuses to halt nuclear research, which it says is for civilian use. Over the weekend, Tehran said the program is "irreversible."

A few weeks after media reports suggested the U.S. is considering a military attack on Iran, President George W. Bush last week said all options remained on the table.

Gold -- which acts as a hedge against inflation pressures (such as soaring energy prices) and as a safe-haven asset amid geopolitical uncertainty -- continues to find support.

Gold and other metals also remained supported as the dollar slumped Monday. A weak greenback raises the value of dollar-denominated commodities, such as gold, as it takes more of the currency to buy the same amount.

The dollar fell to a three-month low against the yen after the Group of Seven most industrialized countries put pressure on China over the weekend to let its currency, the yuan, appreciate.

"In short, the combination of uncertainty on the currency front and uncertainty off global oil prices looks to underpin the precious metals at the start of the new week," writes Nell Sloane, metals analyst at NSFutures.com, in her daily commentary.

This, she notes, seems to contradict expectations that a long-overdue correction in the red-hot metals sector started to unravel last week. Amid "talk of a broad-based commodity fund-liquidation threat, the gold market seemed to weather the selling bout exceptionally well," she says.

That's also the observation of Peter Spina, gold analyst at goldseek.com. Last week "was a week of base building and sent out more positive signals for the future," he writes in his weekly commentary.

Spina also believes that gold should remain supported by Indian demand this week. April 30 marks the day of "Akshaya Tritya," which for Hindus is an auspicious time to buy gold to express wealth and happiness. Spina estimates that demand of 200 tons could be expected, an amount that would mostly have to be imported as Indian inventories have been running low over the past six months.

Mark Newton, technical analyst at Morgan Stanley, is among those who still see a correction pending for gold -- even as he expects oil to continue moving toward $80 a barrel.

From a time perspective, Newton notes, gold's five-year bull run is now nearly equal to its five-year bearish drop from 1996 to 2001, which would imply a reversal around mid-May of this year. "Equal moves in price and/or time can often lead to price reversals," Newton writes in a note to clients.

Newton contrasts his call with some of the most bullish targets thrown around in gold bug circles. "It seems unlikely

... that gold will be able to continue higher to the frequently mentioned $1000 target without a meaningful correction," Newton says.

According to Amaury Conti, equity trader for Austin Calvert & Flavin, a San Antonio investment adviser, metals already are in the midst of a profit-taking pullback, but "it's not a correction nor a trend reversal."

The short-term direction of gold and the other metals largely will depend on what happens on the geopolitical front with Iran and the reaction of oil prices, he says.

When and if oil trends lower, then gold and other metals likely would see a correction, Conti says. However, he's more concerned about the stocks of metals miners, which tend to react more dramatically to changes in the price of metals.

"A lot of people tend to buy into these stocks as they have a 3 to 1 ratio with the underlying metal (ie, a 1% move in a metal equals a 3% move in the miners' stocks)," Conti says. But if the underlying

metals just moderate, you can expect a bigger pullback in the miners' stocks."

Mining companies are also exposed to rising input costs (mostly from energy prices), which squeeze their profits, Conti notes.

Meanwhile, the stocks of metals miners, which have risen sharply along with the metals in recent weeks, were also losing ground on Monday. The Philadelphia Gold and Silver index was recently down 0.8%, the Amex Gold Bugs index was losing 1.4%, and the CBOE Gold index was down 1.2%.

Some of the biggest decliners included

Hecla Mining

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, down 4%,

Gold Fields

(GFI) - Get Report

, down 3.6%,

RandGold Resources

(GOLD) - Get Report

, down 2%, and

Glamis Gold

(GLG) - Get Report

, down 2%.