Metals reach new highs and Oil jumps on gasoline worries

Thurday Mar 30, 2006 3:47 PM ET
By Atul Prakash and Zach Howard

LONDON/NEW YORK (Reuters) - Records tumbled in precious metals markets on Thursday as gold raced to a new 25-year peak, platinum hit a record high and silver spiked to its highest in more than 22 years. Traders said fund managers pumped more money into commodities before the end of the quarter, further feeding a long-running bull market.

"We had a good showing yesterday in gold and silver and they continued to rally today on fund buying and short covering," said a broker at a futures commission merchant in New York. "But this isn't that different from a year ago, really," he added. "These are long-term bull markets and they just keep on moving higher."

Precious metals garnered support also from technical buying, strong base metals and a softer dollar, with prices seen heading toward their next big upside targets.

"We have multiyear highs and it's driven by investors' interest in commodities. I think funds are happy to have a strong quarter-end close for all these commodities," said a precious metals dealer in London.
Gold climbed to $586.70 an ounce, its strongest since January 1981, before trading to $586.20/587.10 late in New York -- a rise of 2.3 percent. That compares with $573.10/574.00 late on Wednesday.

Gold has jumped 14 percent since the start of 2006.

Analysts said funds were diversifying into commodities as they saw stronger returns there than in other asset classes such as bonds and equities.

Silver has soared by 66 percent in the past 12 months, while gold and platinum have jumped by 36 percent and 27 percent, respectively, during the same period.
Analysts said the metal would now target $600.

"It is possible for gold to push through $600 an ounce," John Meyer, analyst at Numis Securities, said.
"Short covering may cause prices to spike toward $650 but there is a significant risk of profit-taking."
The metal got some support from the dollar that slipped on Thursday, succumbing to profit-taking after scoring gains earlier this week. A weak dollar makes gold cheaper for holders of other currencies and lifts gold buying.
"If the fund buying is strong enough, it could lift prices to that target ($600) a lot quicker than we think," said Robin Bhar, analyst at UBS Investment Bank.

Traders said that signals of increasing inflation pressures also attracted investors to the yellow metal.
An inflation gauge favored by the Federal Reserve -- the price index for personal consumption expenditures excluding food and energy -- rose to a 2.4 percent annual rate in the fourth quarter, versus 2.1 percent estimated a month ago.

SILVER SURGES
Spot silver hit $11.70 an ounce, the highest since September 1983, and was last at $11.62/11.65 -- up 4.8 percent on the day -- buoyed by hopes that an exchange-traded fund (ETF) will soon be launched.
Silver has risen more than 13 percent since early last week when the U.S. Securities and Exchange Commission cleared the way for final approval of the first ETF.

But no registration statement has yet been approved that would allow the shares to be publicly issued, said a Barclays spokeswoman on Thursday.

Barclays also called "incorrect" a newswire report that the American Stock Exchange may begin listing shares of a proposed silver-backed investment vehicle as soon as next week.
Analysts feel that silver could reach $12 or even $15 in the medium-term, if the ETF eventually attracts copious buying by consumers and speculators.

Silver mainly is used in jewelry, photography and electronics.
ETFs are designed to track a commodity and trade like listed shares on an exchange. Some analysts said the fund had potential to attract up to 4,000 tonnes of silver, which would equal nearly two months of consumption.
Platinum surged to its highest-ever level of $1,090 an ounce, ending at $1,088/1,092, against $1,071/1,075 previously.

Palladium strengthened to $347 an ounce, the highest in more than three years, before closing at $343/347, versus $333.50/337.50.

Crude, Gasoline End Higher / Excerpt
Oil prices closed near two-month highs Thursday as Iran refused to back down from its plans to develop nuclear energy and traders focused on low gasoline inventories.

Crude for May delivery zoomed up 70 cents to settle at $67.15 a barrel on the Nymex. The contract has risen 5% this week on reduced gasoline supplies, supply disruptions in Nigeria and the ongoing nuclear tussle with Iran.

In a government report on Wednesday, gasoline inventories fell 5.4 million barrels to 216.2 million barrels last week. The drop was the largest since Aug. 2003, but inventories still remain slightly above last year.

Low levels of distillates propped up the price of heating oil, which rose 3 cents to settle at a five-month high of $1.88 a gallon. Although inventories dropped 2.5 million barrels to 124.2 million barrels in the Energy Department's report, they remain 15% above last year thanks to a warmer-than-usual winter.

Read the entire energy article at TheStreet.com:
http://www.thestreet.com/_tscrss/markets/energy/10276498.html