the 'perfect storm' for gold and silver,"We are not likely to se

Gold futures close above $667 on weaker dollar, Iran worries
Tuesday May 2, 2:53 pm ET
By Myra P. Saefong

Familiar formula for gains: Iran jitters, weaker dollar

SAN FRANCISCO (MarketWatch) -- Gold futures climbed more than 1% to close at a quarter-century high above $667 an ounce Tuesday, as a weak U.S. dollar, strong energy prices and concerns about Iran's nuclear program fed into investment demand for the precious metal.

"Traders were watching a sinking dollar and the apparent diversion of petro-dollar profits into bullion (a repeat of the pattern that was last visible in the gold run of 1980)," said Jon Nadler, an investment products analyst at bullion dealer Kitco.com.

So, "while a correction is surely out there, the numerous bullish fundamentals have created the 'perfect storm' for gold and silver," said Peter Grandich, editor of the Grandich Letter. "We are not likely to see this again in our lifetime."

Gold for June delivery closed up $7.20 at $667.40 an ounce on the New York Mercantile Exchange, after topping at $669.30. Futures prices haven't traded at these levels since November 1980.

The benchmark gold contract climbed $5.70 on Monday, leading a broad-based advance in the metals sector as the dollar hit a one-year low against the euro and a seven-month low against the yen. The dollar remained under pressure Tuesday as investors awaited Federal Reserve Chairman Ben Bernanke's speech on Wednesday for more clues on the U.S. interest-rate outlook. See Currencies.

Meanwhile, July silver futures closed up 24.5 cents, or 1.8%, at $14.21 an ounce. The metal's recent peak of $14.74 was seen April 19, marking the highest futures level in 23 years.

Intensifying tensions

In the latest developments surrounding Iran, leading diplomats from the five permanent members of the United Nations Security Council -- France, the U.K. the U.S., Russia and China -- and a representative from the German government were meeting in Paris to discuss the council's next step in its effort to pressure Tehran into halting uranium enrichment.

Manuchehr Mottaki, Iran's foreign minister, said Russia and China have told the Tehran government they will veto any attempt to impose sanctions or attack militarily, the BBC reported, citing an interview in Tehran newspaper Kayhan.

"There is a very wrong assumption held by some that the West can do anything it wants through the Security Council," Mottaki was quoted as saying. The tension has helped lift crude futures above $74 per barrel. See Futures Movers.

Tuesday's Paris meeting comes ahead of a formal May 9 meeting in New York at which foreign ministers from the council member countries and Germany are due to meet to discuss some sort of resolution.

As the financial markets watch the Iran situation closely, a per-ounce price of $700 for gold "now looks likely from current price levels over the coming weeks unless there is some significant negative event to set the market back," said John Meyer, a mining analyst at Numis Securities.

Rounding out Tuesday's metals action, July platinum climbed $7.60 to close at $1,185.40 an ounce to a fresh record of $1,186, while June palladium added 10 cents to end at $386.35 an ounce. July copper dipped 4.4 cents to close at $3.2765 a pound after climbing 10 cents on Monday.

On the supply side, gold inventories were down 85,082 troy ounces at $7.61 million troy ounces as of late Monday, according to New York Mercantile Exchange data. Silver supplies to 123.6 million troy ounces, down 48,423 troy ounces, while copper supplies were down 458 short tons at 16,674 short tons.

Indexes higher for a third day

On the equities side, indexes tracking the metals-mining sector traded modestly higher on the heels of a two-session gain.

The Amex Gold Bugs Index rose by 0.3% to stand at 381.73.

The CBOE Gold Index (CBOE:^GOX - News) reached 162.96, up 1.2%, while the Philadelphia Gold and Silver Index (TSX VENTURE:XAU.V - News) gained to 159.44, up 0.3%.

Among individual shares, Goldcorp (NYSE:GG - News) tacked on 4.8% to $37.78, but Coeur d'Alene Mines (NYSE:CDE - News), which will report first-quarter results on May 8, saw its stock fall 5.8% to stand at $6.48.

Apex Silver suffers decline

Shares of Apex Silver Mines were the biggest index-component losers Tuesday.

The stock dropped 17.4% to $17.34 after trading as low as $13.50. It touched a 52-week high of $27 less than a month ago.

The company said it believes the unusual trading activity in its shares Tuesday is related to recent events in Bolivia, concerning the country's planned nationalization of its hydrocarbon industry.

Apex Silver Mines, however, noted that it is not aware of any plan by Bolivia to follow a similar policy in mining. The company said it's developing its San Cristobal silver, zinc, lead project in southwestern Bolivia, and production is expected to start in the third quarter of 2007.

On Monday, Bolivian President Evo Morales said the move to nationalize the country's hydrocarbons sector was just the beginning. "Tomorrow it will be the mines, the forest resources and the land," he said, according to the Associated Press.

In research note Tuesday, analysts at Bear Stearns said that the headlines emerging from Bolivia are "unlikely to contribute to anything other than transitory short-term pressure on the stocks most exposed to the hydrocarbons sector."

"We would be more concerned, however, with mining stocks with assets in Bolivia, such as Apex Silver .... ," they said, adding that "the pattern we have seen in Venezuela is that energy companies are subject to seeing their concessions changed first and that mining concessions come next."