Gold Drops for Third Straight Session as Energy Costs Decline
Tuesday, August 15th 2006
Gold in New York fell for the third straight session as lower energy costs reduced the appeal of the precious metal as a hedge against inflation.
Gold and oil have moved mostly in lockstep this year. Oil touched a two-week low after BP Plc said it will keep half of the production flowing at Alaska’s Prudhoe Bay, the biggest U.S. field, and a cease-fire began in Lebanon.
“You’ve got crude oil down rather substantially, and that’s a negative influence on gold,” said Daniel Vaught, a commodity analyst at A.G. Edwards & Sons Inc. in St. Louis.
Gold futures for December delivery fell $5.10, or 0.8 percent, to $639.30 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier touched $634.10, the lowest since July 26.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
BP plans to pump 200,000 barrels a day from Prudhoe Bay while replacing corroded pipelines, rather than shutting the Alaska site entirely as initially intended.
Gold reached a record $873 an ounce in January 1980 after oil costs doubled in a year, sparking a surge in inflation.
Crude oil for September delivery fell 95 cents, or 1.3 percent, to $73.40 a barrel today on the Nymex. Prices reached a record $78.40 on July 14. Gasoline futures tumbled 3.6 percent.
Gold also fell after concern eased that oil exports from the Middle East might be disrupted. Israel and Hezbollah agreed to a United Nations-brokered cease-fire in Lebanon that started at 8 a.m. Jerusalem time.
`Doesn’t Bode Well’
“A cease-fire certainly doesn’t bode well for gold at this point,” said Dennis Gartman, gold trader, economist and editor of the Suffolk, Virginia-based Gartman Letter.
Some investors had purchased gold as a haven on concern the fighting in Lebanon would spread to other parts of the Middle East.
Gold is “at risk of softening further across the week following the mild easing of Middle East tensions and reduced U.K. terror alert,” said James Moore, a precious metals analyst with TheBullionDesk.com.
The U.K. today lowered the threat of terrorism in the country from the highest level, four days after police said they foiled a plot to blow up passenger planes. The threat was lowered by one level to “severe” from “critical,” U.K. Home Secretary John Reid said at a press conference.
