Black Gold & Gold Get Tarnished
Tuesday, August 24, 2004SUSIE GHARIB: Prices fell sharply today for two precious commodities: oil and gold. Oil tumbled for the third straight day on news that Iraqi oil is flowing once again after a series of pipeline attacks. October crude futures dropped $0.84 to $45.21 and they`re now 10 percent below last week`s record high. Gold also lost its luster after a hefty run-up this summer. December gold futures plunged almost $8 to $405 an ounce. We have two reports this evening examining the outlook for gold and black gold. We begin with Suzanne Pratt.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It has been a while since crude prices actually fell for three days in a row. To be exact, the last time it happened was in late June. Traders say the same stories that pushed prices up in the last few days are pushing prices down today, most importantly the resumption of two key pipelines that have led to a big pick up in oil shipments out of Iraq. On top of that the political outlook for Venezuela has become more stable. And finally, Russian oil giant Yukos is reportedly making progress on repayment of its tax debt.
HOWARD HOPKINS, OIL TRADER, ABN AMRO: With no fresh news and with the expiration of the September contracts last week, it`s kind of - there`s been nothing to keep pushing us up, so we`re just coming off a little bit from our record highs.
PRATT: The big question, however, is whether the oil market is permanently changing gears. Is it at all possible that prices peaked last Friday, just shy of the psychologically important $50 a barrel. Most oil experts don`t think it is and they $50 is still a possibility.
HOPKINS: Is crude oil worth $50? I think there`s still a good chance that at some point, we`ll see this market make a move towards $50. I don`t really know if it would take a major crisis for that to happen.
PRATT: As for oil stocks, they too sold off today, although only fractionally and some oil analysts say energy shares are actually undervalued if and only if, crude oil prices remain above $40 a barrel.
FADEL GHEIT, OIL & GAS ANALYST, OPPENHEIMER & CO.: If oil prices remain above $40, this stocks remain very cheap, but on historical basis relative to any other investment, at least you have tangible assets you are buying.
PRATT: Updates on U.S. oil inventories are due out tomorrow morning. Stockpiles are expected to shrink. If that happens, it could give oil prices a new reason to rally. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Scott Gurvey. Gold futures moved lower today, but remained above the important $400 an ounce level as gains in the dollar made gold more expensive for buyers using euros as their currency. The price of gold has run up in recent weeks, in part due to interest from retail customers concerned about world events and looking for a safe haven for their money.
KEVIN GRADY, SR. METALS TRADER, REFCO: With all the turmoil that`s going on worldwide, I think people look at the gold as some sort of hedge, some sort of flight to quality. So people want to especially in times of uncertainty, they want to turn towards a hard asset. Gold seems to be that hard asset.
GURVEY: Gold is also seen as an inflation hedge and its price tends to rise when fears of inflation increase. That is happening now as the price of oil trades near record levels and rising energy prices spike inflation concerns. But most professionals trade gold as they would trade a currency and with gold futures denominated in dollars on the New York exchange, its fortunes tend to rise and fall with those of the greenback. And in spite of today`s rally, most currency experts see the dollar remaining under pressure. That is bullish for gold in the near and mid-term.
VICTOR FLORES, SR. MINING ANALYST, HSBC: We generally have a seasonal rally in the fall and I see no reason to believe that it`s going to be any different this year and when you look further, say into 2005, our currency strategists believe the euro could go up to 135 against the dollar or the dollar 135 against the euro and that would imply a good price somewhere around 430 an ounce, so that means that from current levels, there`s still plenty of upside.
GURVEY: Upward movement of gold often means upward movement for gold stocks and the present situation is no exception. The Philadelphia gold and silver index is up 20 percent since May. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
