Bloomberg : Oil, Gold Tumble as Iran Talks Make Progress, Reducing Tensions

Oil, Gold Tumble as Iran Talks Make Progress, Reducing Tensions

By Gavin Evans and Tan Hwee Ann | September 11, 2006

Sept. 11 (Bloomberg) -- Oil fell for a sixth day, its longest losing streak in almost three years, and gold tumbled below $600 an ounce after negotiators reported progress to resolve a dispute over Iran's nuclear research.

Javier Solana, European Union foreign policy chief, said his meeting yesterday with Ali Larijani, Iran's top negotiator, was ``productive,'' easing concerns the country may halt oil exports. The declines come as some economists, including Morgan Stanley's Stephen Roach, say the commodity bull market is over.

`There's weakness across the board, and there's some talk that this could be the beginning of the end for the commodities market,'' said Ron Cameron, a resources analyst at Ord Minnett Ltd. in Sydney. ``Tensions seem to be softening, and that's giving the traders an excuse'' to sell.

Crude oil for October delivery fell as much as 57 cents, or 0.9 percent, to $65.68 a barrel in after-hours electronic trading on the New York Mercantile Exchange, the lowest intra- day price since April 4. It was at $65.91 at 2:56 p.m. in Singapore. The six-day drop is the longest losing streak since October 2003, when oil fell for eight straight days.

``We're headed for the low $60s,'' said Tobin Gorey, commodity analyst at Commonwealth Bank of Australia in Sydney. ``The Iran premium is coming out of the'' oil market and OPEC isn't trying to stem the slide in prices yet.

Near-Record Production

Falling oil and gold prices prompted declines in shares of companies in Asia Pacific that produce the commodities.

The MSCI Asia Pacific Energy Index fell 1.6 percent, led by Woodside Petroleum Ltd. Australia's largest oil and gas company slid 3.6 percent, while PetroChina Co., China's largest oil company, fell as much as 1.7 percent. Newcrest Mining Ltd., Australia's largest gold producer, declined 2.7 percent and Zhongjin Gold Corp., China's largest-traded gold miner by market value, slumped as much as 10 percent.

Members of the Organization of Petroleum Exporting Countries don't plan to cut near-record production at a meeting in Vienna today, Kuwait's OPEC governor said yesterday.

``The mega-run for commodities has run its course,'' Roach, chief global economist at Morgan Stanley, said Sept 5. Roach in May said the surge in oil and metals was a bubble about to pop.

Gold for immediate delivery fell as much as $17.93, or 2.9 percent, to $592.87 an ounce, its lowest since June 29, and its fourth straight day of declines. The metal traded at $594.46 at 3:00 p.m. Singapore time.

Movements in oil and gold prices are 81 percent correlated, Merrill Lynch & Co. said in a Sept. 8 report. A correlation of 100 percent would be a perfect match.

Inflation Hedge

Some investors buy gold as a hedge against rising inflation, and as a haven asset that retains its value better than other securities, such as stocks, during times of geopolitical tension. Further talks between Iran's Larijani and the European Union were planned for next week, Solana said.

``We have reached common views on a number of issues,'' Larijani said after yesterday's two-hour meeting with Solana at the Austrian chancellery. ``Many of the misunderstandings were removed,'' Larijani said, without being more specific.

Oil prices have fallen 16 percent since touching a record $78.40 a barrel on July 14, while gold prices have declined 10.4 percent over the same period.

``The Iranian talks and lower oil prices support a less attractive picture for gold,'' said Jonathan Barratt, head of foreign exchange and metals at Tricom Futures Pty., in Sydney.

The Vienna meetings occurred as the UN nears discussions about possible sanctions on Iran for its defiance of an Aug. 31 deadline for stopping production of nuclear fuel. The five permanent Security Council members and Germany are due to meet later today to discuss the subject, U.S. Undersecretary of State Nicholas Burns said Sept. 8.

U.S., Britain

The U.S. and Britain have accused Iran of developing nuclear power as a front for making nuclear weapons. Iran's government has repeatedly denied the charge, saying that it wants nuclear technology to produce electricity.

Gold for delivery in December fell as much as $17.50, or 2.8 percent, to $599.80 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange. It traded at $602.50 at 3:02 p.m. Singapore time.

``People were playing gold up in the past two months on the basis of oil, and now it's on the way down,'' said Mark Pervan, research head at Daiwa Securities SMBC, in Melbourne.

Some investors are also selling spot gold after it fell below a so-called support level of $604 indicated in charts used by traders, triggering orders to sell to curb losses. A support level is identified by clusters of ``buy'' orders and, when it's breached, traders often switch tack, selling the security to limit losses.

Gold had been expected to rise this week on demand from jewelers, who need to stock up ahead of a projected rise in sales during India's wedding season and holiday festivals, which begin next month.

Survey

Eighteen of 34 traders, investors and analysts from Sydney to Chicago surveyed by Bloomberg News on Sept. 7 and Sept. 8 advised buying gold. Eight respondents said sell, and eight were neutral on the precious metal.

Silver prices, which often move in tandem with gold, also dropped today. Silver for immediate delivery fell as much as 46 cents, or 3.8 percent, to $11.67 an ounce, the lowest since Aug. 1. The metal traded at $11.73 at 3:01 p.m. Singapore time.

To contact the reporters on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net ; Tan Hwee Ann in Melbourne at hatan@bloomberg.net
Last Updated: September 11, 2006 03:14 EDT