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EDITIONS
Wednesday, 5 February, 2003, 22:40 GMT
Powell speech pushes up oil
Gold bars
Gold is traditionally a safe haven in times of trouble
Oil prices and the dollar have risen while gold fell from its six-year high, after US Secretary of State Colin Powell pressed the case for tough action to disarm Iraq.

Immediately after the speech the Dow Jones index of 30 leading US shares had briefly rallied, but then began a steady fall to end the day down 28 points, or 0.4%, at 7,985.

The dollar, meanwhile, climbed from four-year lows against the euro after Mr Powell presented his evidence to the UN Security Council.

US Secretary of State Colin Powell
Colin Powell: Eased market uncertainty

But world oil prices rose on Wednesday, amid fears that demand will soon outstrip supply.

A US government report showed stocks of heating oil and gasoline falling heavily because of cold weather and fuel distributors beginning to hoard supplies ahead of a possible war.

In New York, benchmark US crude oil rose 40 cents to $33.98 a barrel, while London's Brent Crude also edged up.

International support

While many traders believed Mr Powell's speech raised the likelihood of war against Iraq, there were signs that the US was receiving greater international support for its position.

"Comments by Powell, combined with a report from the European Union that they would back action against Iraq" were behind the dollar's rally, said Neil Parker, strategist at Royal Bank of Scotland.

The market is drawing a conclusion that war is not too far away, which is better than constant worrying about when it's going to be, or if it's going to be

Jason James, global strategist at HSBC

After the speech, the dollar rose against the euro.

The euro fell nearly 2 cents from its London trading high above $1.0938, and traded near $1.0760 in midday US trading, down more than 1% from its previous US close.

In London, gold retreated from its highest level since September 1996, to close at $380.70 per ounce.

Over in New York, gold ended down $2.70 at $377.20 an ounce after rising overnight.

FTSE

Shares in London staged a late rally, with a firm response by US stocks helping the FTSE 100 index close up 2.5%.

"The market is drawing a conclusion that war is not too far away, which is better than constant worrying about when it's going to be, or if it's going to be," said Jason James, global strategist at HSBC in London.

"The market would prefer the certainty that the war is going ahead."

Martin Dobson, head dealer at Nat West Stockbrokers, said: "The market is hoping the uncertainty is over."

In the US, Ed White, of Boston-based money manager Gannett Welsh & Kotler said Mr Powell's speech was "positive for the financial markets initially".

This morning we tried to hire a diamond-tipped drill but were told there was none available

Ron Manners, chairman, Croesus Mining

But he added: "If this war doesn't turn out to be quick, surgical and successful, the market will probably go the other way."

Safe haven

The price of gold has risen almost 9% this year, boosting in turn the price of shares in gold firms, and sparking a run on mining equipment.

"This morning we tried to hire a diamond-tipped drill but were told there was none available," said Ron Manners, chairman of Croesus Mining, Australia's third-ranking gold producer.

Analysts predicted that gold, seen as a safe investment haven, would hold onto recent gains.

"We expect upside pressure to persist for gold before any clarity on the prospects of war," said Ingrid Sternby at Barclays Capital.

 WATCH/LISTEN
 ON THIS STORY
Andy Smith, Mitsui Global Precious Metals analyst
Gold "seems to excite this sort of Armageddon-like thinking.."
See also:

05 Feb 03 | Middle East
04 Feb 03 | Business
03 Feb 03 | Business
31 Jan 03 | Business
31 Jan 03 | Business
23 Jan 03 | Business
22 Jan 03 | Business
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