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Stocks fall and gold plummets mid june Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000006&sid=akNSyK03.AqA&refer=homehttp://quote.bloomberg.com/apps/news?pid=10000006&sid=akNSyK03.AqA&refer=home
Gold, Copper Lead Metals Decline on Concern Over Higher Rates
June 13 (Bloomberg) -- Gold had its biggest plunge in 15 years, falling below $600 an ounce, and copper tumbled to a seven- week low as investors bailed out of commodities and equities on concern about rising global interest rates.
Metals fell for a fourth straight session, the longest slide in three months, and billionaire investor George Soros says the commodity rout isn't over. Federal Reserve Bank of Cleveland President Sandra Pianalto said yesterday inflation exceeded her ``comfort level,'' boosting prospects for higher U.S. rates. Consumer prices in the U.K. reached a seven-month-high in May.
``The nervousness behind higher rates are anchoring down the markets,'' said Michael Guido, director of hedge fund marketing and commodity strategy at Societe Generale in New York. ``You have massive global equity losses. Many of these funds are selling secondary and tertiary holdings, which happen to be commodities, to raise cash.''
Gold for August delivery fell $44.50, or 7.3 percent, to $566.80 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage drop since Jan. 17, 1991. Prices have tumbled 23 percent from a 26-year high of $732 on May 12. The metal still has gained 31 percent in the past 12 months.
Copper for delivery in three months fell $470, or 6.7 percent, to $6,570 a metric ton on the London Metal Exchange, the lowest close since April 20. The metal is down 25 percent from a record $8,800 on May 11. Prices still have doubled in the past year.
Silver futures for July delivery tumbled $1.44, or 13 percent, to $9.625 an ounce on the Comex. Prices have plunged 37 percent since reaching a 23-year high of $15.20 on May 11.
`Reduction in Liquidity'
``Commodities probably are in for a period of correction,'' Soros told financial news network CNBC yesterday. ``We are in a situation where all asset classes are under pressure because of a reduction in liquidity.''
Industrial metals have tumbled from records this year, and gold and silver have slumped in the past month from the highest prices since the early 1980s amid growing speculation higher borrowing costs will stifle the five-year rally in commodities.
U.S. stocks fell for a third day, European equities dropped to a six-month low, and indexes in Japan and Australia had the biggest losses since September 2001. Emerging markets also tumbled.
``There's too much froth in this market,'' said David Gornall, head of foreign exchange and bullion at Natexis Commodity Markets Ltd. in London. ``People are removing higher risk from their portfolio.''
Gold climbed 18 percent last year and surged 39 percent from the end of 2005 to mid May, partly on demand from investors seeking returns unavailable from stocks, bonds and currencies. Tensions over Iran's nuclear program also boosted the precious metal's appeal as a haven.
`Hot Money'
``There's hot money in the metals, and it can come and go, lending to volatility both ways,'' said A.C. Moore, who manages the $500 million Dunvegan Growth fund in Santa Barbara, California. ``People get nervous and sell commodities to raise some cash.''
Shares of mining companies also fell. The Philadelphia Stock Exchange Gold and Silver Index fell 3.92 or 3.1 percent to 120.79. Shares of Freeport-McMoRan Copper & Gold Inc., which operates the largest gold mine in Indonesia, tumbled $2.06 to $44.65.
The European Central Bank raised its benchmark interest rate on June 8 for the third time in six months. South Korea raised its key rate the same day, followed by India and South Africa. At least four Fed officials said last week they're concerned about inflation.
Interest-rate futures show traders are pricing in a 90 percent chance the Fed will raise its benchmark rate a quarter-percentage point to 5.25 percent at its meeting late this month, up from 84 percent odds yesterday and 72 percent on May 31.
U.K. Rates
U.K. consumer prices rose 2.2 percent from a year earlier after rising 2 percent in April, the Office for National Statistics said today, making it more likely the Bank of England will raise rates. Prices paid to U.S. producers in May also rose more than forecast, stoking inflation concerns.
``The fears of a slowing economy are going to cast doubt on the demand for metals,'' said James Vail, who manages $700 million in natural-resource stocks at ING Investments LLC in New York. ``It's a very unsettling time. We're overreacting on the downside as much as we were overreacting on the upside.''
The rising cost of gasoline propelled U.S. consumer prices higher last month, giving Federal Reserve policy makers reason to fret they're losing their grip on inflation, economists expect a report to show tomorrow.
`Play Defense'
The consumer-price index rose 0.4 percent in May after a 0.9 percent gain the prior month, according to the median forecast of 72 economists surveyed by Bloomberg News.
Metal prices will tumble should the index increase more than forecast, some analysts said.
``The CPI is more Main Street,'' Guido of Societe Generale said. ``A higher number and the metals market continues to play defense.''
Demand still outstrips supply and the rally in metals may resume, Vail at ING said. Speculators increased copper purchases earlier this year amid forecasts global production will lag behind consumption.
``It's very difficult in today's world to find new supplies, and companies are having difficulty in meeting production targets,'' Freeport-McMoRan Chief Executive Officer Richard Adkerson said today in an interview. Output will be lower in 2006, and ``even at today's prices, we have the opportunity to have even a stronger year,'' he said.
Time to Buy?
Some investors say the price decline offers a buying opportunity for some metals.
HSBC Holdings Plc estimated last month about $100 billion will be invested in commodity indexes by the end of 2006, compared with $10 billion at the end of 2003.
``This is not the end of the commodities rally,'' said Michael Widmer, an analyst at Macquarie Bank Ltd. in London. ``The fundamentals for most commodities, such as gold, are strong.''
Moore of Dunvegan, who sold some shares of the StreetTracks Gold Trust exchange-traded fund as the metal was rising to a 26- year high, said he's considering buying metals.
``We're more interested in gold and metals generally,'' Moore said. ``There's still a bull run in gold, and the money will be back.''
Last Updated: June 13, 2006 15:09 EDT
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