Metals Prices Close Higher

Concerns about U.S. intentions in Iran support the complex.
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Updated from 1:01 p.m. EDT

Gold and other metals surged again on Monday as investors sought the safe haven of hard assets after media reports suggested the Bush administration is planning an attack of Iran.

Over the weekend, both

The New Yorker

magazine and the

Washington Post

reported about plans of possible U.S. military strikes in Iran, including the targeting of nuclear facilities.

The White House on Monday downplayed the reports, saying the U.S. wants to settle the Iran nuclear crisis through diplomacy, even if the administration has not ruled out a military option.

Still, the reports fired up energy prices, with crude oil adding $1.35, or 2%, to $68.74 a barrel by the close of trading on Nymex.

Gold, which serves as a hedge against inflation as well as a safe-haven asset, finished up $9.1, or 1.5%, at $601.80 an ounce. It earlier rose to a fresh 25-year high of $602.80.

The precious metal jumped above $600 last week for the first time in 25 years, with other metals also powering ahead.

Other metals surged even more on Monday, with silver gaining 49 cents, or 4%, to $12.56 an ounce, just off a fresh 22-year high of $12.57. Copper added 6.85 cents to $2.709 a pound, a new all-time high.

"The white metals are again outperforming gold, which is having trouble staying above $600," says Tom Hartmann, analyst at Altavest. "Institutional players are not as big players in silver and copper

as they are in gold and some of the end users feel they're still getting those metals cheap."

Hedge funds have also boosted long positions in gold, while they've been selling silver and copper in the face of continued strength, according to Mary Ann Bartels, technical analyst at Merrill Lynch. "Such skepticism as the metal complex rallied is usually bullish," she wrote in a note to clients.

Metals prices backed down on Friday as the dollar advanced after a strong U.S. employment report for March boosted expectations that the

Federal Reserve

will continue to hike interest rates. Metals, like most commodities, are priced in dollars and lose value when the greenback rises.

"In addition to a currency undertow created by the dollar, the threat of over-tightening by the U.S. Fed might also be considered a slight negative to gold," according to Nell Sloane, gold analyst at NSFFutures.com.

Gold and metals have been riding a wave of upward revisions of global growth. Last week, the International Monetary Fund raised its 2006 global economic growth forecast to 4.9% from 4.3% previously. At the same time, the IMF raised its forecasts of Chinese growth to 9.5% vs. 9.0% previously.

But a U.S. economic slowdown, possibly brought on by the

Fed

hiking rates too much, also would impact Chinese and global growth, which still largely depend on U.S. consumption.

Gold and metals therefore also got a boost on Monday when Fed Governor Susan Bies said the central bank's key rate is closer to an "appropriate" level following 15 consecutive rate hikes, according to

Bloomberg

.

The dollar slightly rose vs. the yen but it fell vs. the euro amid expectations of a strong report on business confidence in Germany on Tuesday.

And especially after the March U.S. jobs report, markets seem comforted in their expectations of strong global growth.

Silver and particularly copper are seen more as "growth plays" and might therefore have more upside than gold, according to Altavest's Hartmann.

Meanwhile, a report in the

Financial Times

on Monday suggested that commodities prices are set to continue surging amid global economic growth, strained production capacity and a rising tide of investment flows.

Coming after weeks of strong gains in most commodities prices, the report might be seen as a sell signal for "smart money" investors, who tend to jump out of a rising trend when it becomes too popular.

Yet, according to Hartmann, metals have not yet shown signs of "frantic" speculative trading, which often precedes a pull-back. The expected launch of a silver exchange traded fund (ETF), similar to gold's

streetTRACKS Gold

(GLD) - Get Report

, is still fueling silver's advance. Expectations of strong industrial demand, meanwhile, should continue to underpin copper and other base metals, Hartmann says.

The stocks of metals miners, meanwhile, reversed earlier gains after the close of most commodities markets at 3.00 PM EST. The Philadelphia gold and silver index dropped 0.4%, the Amex Gold Bugs index dropped 0.5% and the CBOE Gold index fell 0.4%.

Gold Fields

(GFI) - Get Report

which has rallied 25% since early March, dropped 4.55%.

Among gaining stocks,

Harmony Gold

(HMY) - Get Report

added 1.0% and

Freeport McMoran

(FCX) - Get Report

rose 1.7%.

Newmont Mining

(NEM) - Get Report

rose 0.4% to $52.94 after Prudential upgraded the stock to a neutral from a sell rating.

"We do not have a strong conviction about future gold prices, whose movements will reflect war uncertainties, real interest rates, energy prices, jewelry demand and related tough to predict dynamics," Prudential analyst John Tumazos wrote in a note.

"However, Newmont's current share price has greatly lagged the gold spot price since

it exceeded $50 in December 2003 as gold prices neared $415 per ounce," he wrote.

Meanwhile,

Alcoa

(AA) - Get Report

rose 1%. The aluminum giant kicked off the first-quarter earnings season after the close, reporting that net income had more than doubled -- beating analysts' forecasts -- in the latest period thanks to high metal prices and strong demand.