SAN FRANCISCO – Gold futures headed lower in electronic trading Thursday evening, reversing course after closing the regular session at another multidecade high above $720 an ounce.
Silver prices reached levels not seen in a quarter of a century, and copper and platinum set records during the daytime session as traders bet on longer-term weakness in the U.S. dollar and strong global demand for metals. But prices for all three metals weakened in evening trading.
Gold for June delivery fell to a low of $715.70 an ounce in electronic trading following a rise to an intraday high of $728 an ounce on the New York Mercantile Exchange. That’s a level futures prices haven’t seen since September 1980, according to monthly charts from Thomson Financial. The contract closed Thursday up $15.80, or 2.2 percent, at $721.50 an ounce.
July silver touched $15.20 an ounce, the loftiest futures level since early 1981, before finishing the day up 65.5 cents, or 4.6 percent, at $14.935. In electronic dealings, however, it traded as low $14.735.
Overall, “a global readjustment is taking place, and the short of it is – the U.S. dollar is losing its dominance,” Peter Spina, chief investment strategist at GoldSeek.com, said earlier Thursday.
“Clearly, the shift from the U.S. dollar is accelerating,” he said. “Combine this with other driving factors in the gold market, (and) you have the recipe for much higher prices.”
On Wednesday, gold spiked after the Federal Reserve raised rates and said it may raise again if needed to cool the economy and keep inflation in check.
“Contrary to expectations (as well as to past patterns), the dollar eroded further and gold gained even more ground, right after the FOMC interest rate hike,” said Jon Nadler, an investment products analyst at bullion dealers Kitco.com.
“The precious-metals market is sensing something here that is starting to feel inflationary, volatile, and full of future problems for the dollar,” he said.
The dollar hit a fresh one-year low against the euro Thursday, as the uncertain outlook for interest rates failed to stem the bearish sentiment in the market.
Gold has surged this year, partly because of inflation fears, dollar weakness and worries about developments in the Middle East. But the metal has broken out of its traditional role as a safe-haven instrument and taken on a momentum of its own as a new asset class, attracting strong demand from a wide range of investors.
“Many traders … now feel, based on the Fed’s comments (Wednesday), that the Fed could actually be behind the eight ball in raising rates to effectively combat inflationary pressures,” said John Person, president of National Futures Advisory Service.
“Crude oil is above $70 per barrel, wage costs have increased … and the dollar is sharply lower since the beginning of the second quarter,” he said. “This gives the gold bulls more reason to buy now, especially since many believe gold could hit $800 to $1,000 per ounce by year’s end.”
From here, “market participants are now starting to talk about the January 1980 peak of $850 as a viable target, which would require another 20 percent appreciation in gold from the current high,” economists at research firm Action Economics said in an early Thursday note to clients.
Still, at $725, “there’s now more risk than reward in the near term,” warned Peter Grandich, editor of the Grandich Letter.
“Eventually the old highs around $875 should be taken out, but we’re now getting severe overbought signals that can’t be discarded,” he said.
Indeed, in the short term, gold may “see a healthy correction” from the $750 level, according to Person.
On the geopolitical front, the head of the United Nations International Atomic Energy Agency, Mohamed ElBaradei, said he welcomes the Security Council’s decision to hold off imposing any sanctions on Iran over its nuclear program, the BBC reported.
The United States earlier this week agreed to a delay in imposing sanctions to allow European diplomats time to explore other options in resolving the situation.
“It is very good that the (U.N.) Security Council holds its horses,” ElBaradei said at a news conference in Amsterdam, according to the BBC.
“I am very optimistic. I hope both sides will move away from the war of words, I hope the pitch will go down. … we need compromises on both sides,” he said.
Iran has rejected demands from the United Nations to halt its nuclear research, claiming it is aiming solely to generate electricity for civilian purposes and not to develop nuclear weapons, as the West fears.
“A major rift is shaping up between the U.S. and Russia and China as to how to deal with the Iranian threat,” said Nadler. “This is precisely the type of uncertainty and tension that is shaping today’s bullion markets.”
“In addition, the metals market is also digesting the recently noticed (disturbing to some) trend of nationalization of resources in some Latin and South American countries,” he said, adding that “these policies and their impact, have investors worried about the future of metals.”
Other metals rallied along with gold and silver in Thursday’s regular session. July platinum set a new high at $1,299.50 an ounce before closing up $35.90, or 2.9 percent, at $1,295.60. It fell as low as $1,294 Thursday evening. June palladium climbed $9.80 to end the day at $400 an ounce after a high of $401.10 – a level not seen since 2002.
July copper set a record at $4.04 a pound before ending the session up 23.5 cents, or 6.4 percent, at $3.923 an ounce. It touched a low of $3.866 in the evening session.
On the supply side, gold inventories rose 49,460 troy ounces to 7.67 million as of late Wednesday, according to Nymex data. Silver supplies fell 85,600 troy ounces to 123.5 million.
Copper fell 315 short tons to 14,250 short tons.
The broad rally among the metals futures drove three major benchmarks that track the sector to never-before-seen levels Thursday. But the benchmarks ended the session lower in the wake of the retreat in metals prices during the electronic trading session.
The Philadelphia Gold and Silver Index closed down 1.5 percent at 166.09 following a 171.71 peak and the CBOE Gold Index reached 168.84, down 1.9 percent after touching a lofty 175.05.
The Amex Gold Bugs Index traded as high as 401.69. Then it closed at 387.21, losing 1.8 percent.
Among the standouts, shares of Goldfields Ltd. added 3.7 percent to close at $26.33. But shares of Hecla Mining lost 5.6 percent to finish at $6.05.