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Katrina inflation concerns send gold 17 year high Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=aHucyEqCuSb8&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=aHucyEqCuSb8&refer=home
Inflation Concerns Roil Bond, Gold Markets, Lift Mining Stocks
Sept. 16 (Bloomberg) -- Inflation concerns rattled financial markets in the wake of Hurricane Katrina, pushing down U.S. Treasury bonds, sending gold to a 17-year high and boosting the shares of companies that stand to gain from higher prices.
The 10-year Treasury note had its biggest weekly decline since March. Gold extended a rally that has lifted the price of the yellow metal by almost 10 percent in two months. Shares of basic materials producers such as Australian miner BHP Billiton and Brazilian steelmaker Gerdau SA surged.
Investors speculate government spending on the cleanup from Hurricane Katrina will add to inflationary pressures already stoked by record energy prices. The European Union's statistics office today said inflation in the dozen nations sharing the euro was faster than first estimated, and JPMorgan Chase & Co. this week raised its global inflation forecast for the second time in a month.
``With the recent events of Katrina, we think that inflation will spike up toward the end of the year and the bond markets are certainly getting worried about it,'' said Don Alexander, a fixed- income strategist in New York at Citibank Private Bank, which has $200 billion in assets.
Crude oil prices are 45 percent higher than a year ago and reached a record $70.85 a barrel on Aug. 30 after Hurricane Katrina swept through the Gulf of Mexico, damaging oil rigs and devastating three U.S. states. A survey of manufacturers released this week by the Federal Reserve Bank of Philadelphia found the biggest increase since 1973 in the prices factories paid for materials.
Global Forecast
JPMorgan, the third-biggest U.S. bank, raised its global inflation forecast on Sept. 14 to an annual rate of 2.9 percent next quarter, from 2.6 percent previously.
The Labor Department in Washington yesterday reported that U.S. consumer prices are rising at a 3.9 percent annual rate, compared with a 3.5 percent increase at the same time last year. In Europe, Eurostat in Luxembourg said today that consumer prices in the dozen nations that share the euro climbed 2.2 percent from a year ago, above the 2.1 percent estimated Aug. 31. Inflation has exceeded the European Central Bank's 2 percent target for the past seven months.
Manufacturers say they will have to pass the rising oil costs on to consumers.
Midland, Michigan-based Dow Chemical Co., the largest U.S. chemical maker, said yesterday it will increase prices for all of its chemical and plastic products, without setting a timeframe. Dow rival DuPont Co. on Sept. 12 announced plans to raise prices for its 35,000 products within 30 days.
Rising Costs
In a survey of manufacturing in Pennsylvania, Delaware and southern New Jersey released yesterday, growth slowed more than expected as prices paid for energy, raw materials and parts had their biggest increase in more than three decades. The Fed Bank of Philadelphia's general economic index is closely watched for clues about manufacturing nationwide.
Katrina ``comes at a very bad time,'' said Mickey Levy, chief economist at Bank of America Corp. The hurricane ``has driven up energy prices and it may hit core inflation because prices of commodities have gone up.''
Inflationary concerns may prompt the Fed to continue raising interest rates. Goldman, Sachs & Co. today predicted the central bank will raise its key interest rate by a quarter-point next week. Two weeks ago, Goldman forecast the Fed would keep the benchmark interest rate at 3.5 percent at the Sept. 20 meeting.
President George W. Bush late yesterday promised to rebuild areas damaged by Hurricane Katrina, mostly with federal funds. Senate Majority Leader Bill Frist said the cleanup from Katrina may cost $200 billion, swelling the U.S. budget deficit. Higher inflation erodes the value of the interest payments of government notes already in circulation.
Yields Jump
The price of the 4 1/4 U.S. Treasury note due in August 2015 fell 1/2, or $5 per $1,000 face amount, to 99 25/32 today. The yield rose 7 basis points, or 0.07 percentage point, to 4.28 percent at 1:45 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The yield, which rises as prices fall, is up 16 basis points this week, the most since the period ended March 11.
Gold futures for December delivery rose $4, or 0.9 percent, to $463.30 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier touched $464, the highest for a most-active contract since June 1988. Gold, valued as a haven when returns on financial assets are eroded by inflation, has risen 14 percent in the past year.
The prospects for faster inflation are driving the stock prices of some of the world's largest gold producers. South Africa's benchmark index advanced to a record for a second day, paced by Harmony Gold Mining Co. and other gold miners. Australian stocks also rose, led by BHP Billiton, the world's biggest mining company. In the U.S., shares of Denver-based Newmont Mining Corp. headed for the highest closing price in six months.
``People look at gold these days as part of the protection for inflation that they see coming into the economy,'' said Stuart Flerlage, managing principal at Patronus Capital in New York. ``Consumers are starting to see it hit their wallets.''
Last Updated: September 16, 2005 16:09 EDT
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