March 22, 2011

Gold Up, Oil Dips as World Reacts

Libya, Japan crisis edge gold higher; profit-taking and supply concerns hit oil

Tuesday saw gold prices continuing to rise on concerns about military action in Libya and the ongoing crisis in Japan, while investors claimed profits on oil in anticipation of slowing intervention by the U.S. and other nations in Libya.

Reuters reported that physical gold gained again, adding 0.2% to reach $1,427.86 an ounce in early trading. Monday’s overseas trading saw the precious metal at one point hit just $10 shy of its record, coming in at $1,434.70. U.S. gold was up 0.1% to $1.428.20.

The SPDR Gold Trust, however, fell 10.616 tons in its largest single fall since late January; investors lost some interest in the largest exchange-traded gold fund’s bullion. In Tokyo, though, demand was unabated; the premium for gold bars was running $1.50-$2 above London spot prices, while gold futures on the Tokyo exchange rose 0.2% to 3,725 yen per gram ($1,426.695 per ounce). A trader at a Tokyo-based bullion house was quoted in the report saying, “Gold in yen jumped up this morning, and we've seen some selling back.”

Oil prices weakened as expectations that foreign intervention would slow pushed investors to engage in profit-taking. Brent crude dipped below $115, hitting $114.69 in early European trading. May U.S. crude lost $0.20 to come in at $102.89. On Monday oil had gained about 1%, but analysts said that the market has now accepted that Libya won’t be much of a source for oil in the near future.

Edward Meir, senior commodities analyst at MF Global, said in the report, "Short-term, we suspect that the crude oil market is somewhat overextended here, as the fighting in Libya will lose its ability to spark the market higher. For all practical purposes, investors have reconciled themselves with the fact not much oil will be flowing out of Libya anytime soon."

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