Gold, silver hold gains on EU debt fears

Prices shrug off an interest-rate hike in South Korea.

By TheStreet Staff Mar 9, 2011 11:26AM

Gold © Comstock Images/Jupiterimagesmore metals and mining investment news from thestreetBy Alix Steel, TheStreet

 

Updated at 4:40 p.m. ET

 

Gold prices rose slightly as they shrugged off an interest-rate hike from South Korea and as eurozone debt fears resurfaced.

 

Gold for April delivery added $2.40 to settle at $1,429.60 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,436.80 and as low as $1,423.20, while the spot gold price was up $1.10, according to Kitco's gold index.

 

Silver settled 39 cents higher at $36.04 per ounce, a new 31-year high. Both metals continued to rally in after-hours trading.

 

Precious-metals buying had a murky start Wednesday. Oil prices chopped around after the American Petroleum Institute said inventories rose 3.8 million barrels last week, easing worries that Middle East and North African unrest will choke oil supplies and drive prices higher. Meanwhile, South Korea's central bank raised interest rates by 25 basis points, as expected.

 

As crude oil dipped slightly, the Dow Jones Industrial Average ($INDU) pared early losses, closing down 1 point at 12,213. The S&P 500 ($INX) fell 2 points to 1,320, and the Nasdaq ($COMPX) lost 14 points, or 0.5%, to finish at 2,752.

 

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Investors had been buying gold and silver as protection against an explosion of violence and oil disruption in the Middle East. That underlying factor is losing its luster, dampening the metals' rally. Picking up the slack, however, is a weak bond offering in Portugal.

 

Portugal raised €1 billion until September 2013 but had to pay the price. The average yield rose to 5.99% from 4.08% at the previous auction. Moody's also struck at Greece again, downgrading the country's debt Monday and then downgrading its rating on six of the nation's banks.

 

The news comes as European Union leaders try to work out a permanent bailout fund and set rules for how to secure the cash, such as rapid decreases in debt and spending. Leaders will be in a series of meetings until the end of March.

James Moore, a research analyst at FastMarkets, says with "eurozone debt woes back on the agenda, we expect dips to continue to be viewed as buying opportunities." Moore says both gold and silver could see more consolidation before heading higher.

 

Oliver Pursche of Montebello Partners echoes the warning. "The current prices of gold and silver . . . are not supported by fundamentals. However, given the current crisis in North Africa and the Middle East (and) . . . expectations of further inflationary pressures . . . we recommend investors increase their exposure to soft commodities and energy."

Gold mining stocks, a risky but potentially profitable way to buy gold, closed mostly lower Wednesday. Barrick Gold (ABX) fell 1.1% at $51.67, Newmont Mining (NEM) shed 0.8% to close at $52.58 and AngloGold Ashanti (AU) finished flat at $47.50.

 

Randgold Resources (GOLD) recovered 1.6% to close at $74.94 after taking a beating Tuesday on worries that political instability in Ivory Coast will disrupt production at its Tongon mine. Cluff Gold halted its operations in the region Monday as the company struggled with obtaining critical supplies like fuel.

 

According to maps on the companies' websites, Cluff Gold's mine Angovia is in the middle of Ivory Coast, whereas Randgold's Tongon mine is near the borders of Mali and Burkino Faso. Randgold issued a press release Wednesday saying its Tongon operation is functioning normally despite some delays or interruptions due to the political situation.

 

CEO Mark Bristow said last week at the BMO Capital Markets Global Metals and Mining conference that the mine should meet guidance "provided that politics there find some stable ground before the middle of the year." Bristow said Wednesday that the company is monitoring the political situation in Ivory Coast.

 

The unrest there has a familiar ring. Laurent Gbagbo, the former leader, won't leave office after getting voted out in late November. More than 400 people have been killed, according to estimates; seven women were mowed down last week, and four were killed this week during another protest.

 

"It's a challenging environment which we have to manage through," Bristow says. "We can grow our business even if we delayed Ivory Coast for a while." The mine is expected to produce 260,000 to 270,000 ounces of gold in 2011.

 

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