March 21, 2011

Oil, Gold, Stocks Rise on Libya, Japan

MENA uncertainty fuels gold, oil hikes; glimmers of hope fuel stock prices

Air strikes in Libya drove the prices of oil and gold higher on Monday, while indications that Japan might be progressing in containment of its reactor woes lifted stocks on world markets.

Reuters reported that oil was up $2 per barrel after the launch of a second wave of air strikes on Libya by the West. Brent crude gained $2.02 in midday trading to come in at $115.95 per barrel, and April U.S. crude lifted by $1.91 to reach $102.98 as continued conflict in Libya and unrest in other Middle East/North Africa (MENA) nations, including Syria and Yemen, drove uncertainty.

That uncertainty also stimulated a return to safe-haven gold, with the precious metal gaining for its fourth straight day. Midday European trading saw gold gaining 0.8% to come in at $1,430.90, with U.S. April futures up 1.1% to $1,431.40.

Concerns over Japan’s devastation also fueled the gold bug, despite the fact that worries over nuclear containment are subsiding. Many were forced to sell gold in the past week to cover other positions in the wake of Japan’s disaster, as they also abandoned high-risk investments, and analysts said that risk aversion could drive another round of selling under similar circumstances.

Ole Hansen, Saxo Bank senior manager, said in the report, "It's happening against a backdrop of elevated uncertainty from numerous places, which should give these safe-haven type commodities a bid." He went on to add, "As long as we have this tendency toward risk aversion in the market, gold will be struggling. It's such a high percentage of the total investment in commodities, so if there is anything to be reduced, gold is often in the firing line in that respect."

Good news from Japan, however, boosted equities, with word that engineers had managed to rig power cables to all six Fukushima Daiichi reactors and had restarted a water pump at one to control overheating. The pan-European FTSEurofirst 300 index of top shares was up 1.6% at midday, with the MSCI world share index up 0.7% and U.S.futures looking toward a strong open; the S&P 500 was up 1.2% before open and Dow futures were up 1%.

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