Commodity Stocks Lose Golden Luster

Russian shares lost some of their shine this week as gold led a plunge in commodity prices that beat down metal and oil stocks.

Global news continued to dominate sentiment. Stock markets around the world tumbled Monday in reaction to the firesale of Bear Stearns. The U.S. Federal Reserve stepped in Tuesday to stem the tide, cutting interest rates by a less-than-expected 0.75 percentage points to 2.25 percent, as some analysts interpreted the step as a sign that the Fed might have the situation in hand.

Credit Suisse unsettled markets Thursday, announcing a profit warning after the "intentional misconduct" of some traders, while British bank HBOS suffered massive upheaval on the stock market after rogue traders circulated unfounded rumors that the bank was facing a liquidity squeeze, which could prompt a run on the bank.

"It's clear that investor confidence is shot to bits and will take a long time to recover," UralSib chief strategist Chris Weafer said in a note Tuesday.

In an otherwise gloomy week, there was some comfort from Lehman Brothers and Goldman Sachs, both of which turned in better-than-expected profits amid rumors of more liquidity problems, allaying fears for now of another big bank collapse.

In Russia, both indexes plunged Monday in line with global stocks, a harbinger of things to come. It was a rocky week for Russian equities, and the RTS and MICEX dipped into the red again midweek for two straight days, culminating in a sharp fall Thursday. By the end of the week, stocks started to tick up again while Western markets took a breather for the Good Friday holiday.

The dollar-denominated RTS closed down 4.8 percent on the week to 1964.65 points, while MICEX, where the bulk of trading takes place, shed 4.6 percent to 1576.47 points.

Commodities stole the headlines, suffering one of their worst weeks in decades, as gold and oil shed their most recent gains. Russian metal stocks reacted across the board, with Evraz, Mechel, NLMK and Norilsk Nickel all suffering big losses.

"The main driver behind falling Russian metal stocks was the falling metal prices," said Vladimir Zhukov, a metals analyst at Lehman Brothers.

Gold, which has soared in recent months to forge past $1,000 per ounce, started to slide midweek after the Fed's move on interest rates helped shore up the dollar, sparking gold's biggest weekly fall in nearly 20 years. The metal, which has been the main beneficiary of the flight from a weak dollar, skidded to $904 per ounce, before closing up at $920 per ounce, on the New York Mercantile Exchange by Thursday's close.

There was some profit taking in London, as investors dumped shares in Russia-focused gold miners Polyus Gold, Peter Hambro Mining and Highland Gold.

Silver also suffered losses, while base metals took a battering across the board, led by nickel, copper and zinc. U.S. light crude dropped from a high of $111 per barrel to hover around $100 per barrel Thursday.

"Metal prices have rallied quite a bit since the beginning of the year," said Tim McCutcheon, a Moscow-based fund manager at DBM Capital. "So liquidity [issues] combined with sharply rallying prices [meant that] eventually someone decided to take profit, and apparently a whole lot of people made that decision at the same time."

Global Depositary Receipts of Evraz fell 10 percent to $80.50 after it called off the merger of its coal interests with miner Raspadskaya, a move analysts viewed as slightly negative.

Severstal, which said Friday it would become the fourth-largest steel maker in the United States after its $810 million acquisition of ArcelorMittal's Sparrow Point plant, found some support to climb by 0.65 percent by the day's close.

Norilsk Nickel was up fractionally on the RTS after Mikhail Prokhorov and Vladimir Potanin decided not to liquidate their jointly held assets in KM-Invest, which in turn holds an 8 percent stake in Norilsk.

Analysts said this might threaten the deal between RusAl and Prokhorov, because Prokhorov had agreed to sell RusAl the 4 percent of Norilsk he holds through KM-Invest.

Gold may have lost its shine for now. But investors say it is only a matter of time before it continues on its upward curve.

"Gold is an interesting commodity because the supply situation is very bad," McCutcheon said. "From a macro point of view, everything is very, very favorable for the gold price."