A gold price rally underpinned shares in Randgold Resources and African Barrick Gold last night, with analysts eyeing further gains as the European debt crisis rages on. Prices rose to their highest in six weeks, climbing to $1,782 per ounce at one point during the day, as investors rushed for cover. With little clarity on the future direction of stock markets, and against the backdrop of signs that Italy could be the next victim of the sovereign debt storm, the metal stood out as one of the safest bets around.
Aiding the advance were signs that investors might have begun rebuilding long term positions in gold, which has fallen back from the September high of around $1,920 per ounce.
Recent figures from the US Commodity Futures Trading Commission boosted the mood among gold bugs, who cheered evidence of an uptick in the level of investor interest. "Clearly there is a lot of fear in the system and gold is doing what it should do," Ross Norman, the chief executive of the physical precious metals trader Sharps Pixley, said.
The point was not lost on equity investors, who took their cues from their colleagues on the commodity markets. As a result, the gold miner Randgold Resources enjoyed a comfortable passage to second place on the FTSE 100 leaderboard, up 145p to 7,455p, while mid-cap peer African Barrick Gold drilled ahead by 16p to 567p as the wider FTSE 250 index lost ground.
Overall, the market was lower, with the blue-chip index down by 16.34 points at 5,510.8 and the mid-caps 85.56 points behind at 10,302.24. It was a volatile session, with markets yo-yoing in response to the drip-drip of positive rumours and negative news from the eurozone.
All eyes were on Italy, which saw another spike in its borrowing costs. Investors demanded interest rates of up to 6.6 per cent to lend to Rome for 10 years, talking Italy's costs closer to the 7 per cent level that left Portugal and Ireland in need of multi-billion pound bailouts.
Dampening the mood further was the latest missive from market strategists at Morgan Stanley, who lowered their view on European equities to "underweight". The move reflected "fears over [an] inadequate policy response, weakening economic growth, falling margins and less constructive readings from our market timing indicators," they explained.
The concerns led them to take more money out of financial sector stocks, a strategy that was also adopted by investors trading on the FTSE 100 yesterday.
Royal Bank of Scotland, which was also the subject of some negative comment from Morgan Stanley equity analysts, was the weakest of the banks, sliding 0.84p to 22.25p, while part-nationalised peer Lloyds fell by 0.875p to 27.69p. HSBC and Standard Chartered, which, with their vast international operations, are often outperformers in the sector, were also held back yesterday, falling by 5p to 535p and by 18p to 1,394.5p respectively.
Food retailers, some of whom are due to post updates this week, were also caught up in the market mayhem. J Sainsbury, which is due to release its interim results tomorrow, was 3.4p weaker at 298.6p as Credit Suisse flagged up the potential for margin pressure if Tesco, down 0.9p at 404.65p, extends its 'big price drop' (BPD) drive later this month. "BPD has been running for six weeks now," the broker said, noting that this was "unusual, especially for fresh foods where Tesco normally maintains price cuts for just four weeks".
"The next key date is November 23, which is the current 'valid until date' for most BPDs" it explained. Thus far, Sainsbury's has been matching prices on some products "but by no means all," according to the broker. But "if it has to match more BPDs for longer, plus execute its own Brand Match promise, we think margin pressures could build," it warned.
The property website Rightmove shrugged off some negative comment about its share price from Altium to rise by 23p to 1,404p last night. Weighing in ahead of the company's update later this week, the broker had no issues with the business, acknowledging the "strong and resilient subscription based model" which sees Rightmove charge estate agents who advertise on its pages.
Altium also had warm words for the management. But the compliments ran out when the broker, which does not expect to hear of anything that would prompt forecast upgrades this week, turned to the chunky valuation. On its estimates, Rightmove shares trade on nearly 32 times forward earnings for this year, falling to 27.1 times on the figures for next year.
"We remain concerned that, in the absence of upgrades, the group's substantial premium valuation relative to the sector and the broader market looks stretched and leaves no scope for disappointment," the broker said, reiterating its "sell" recommendation and 910p target price.
FTSE 100 risers
l Icap 362.7p (up 12.3p, 3.51 per cent) Interdealer broker rallies to claim first place on the FTSE 100 index as bargain-hunters move in to capitalise on the 19 per cent decline seenlast week.
l Anglo American 2,369.5p (up 31p, 1.3 per cent) Mining giant gains ground after Deutsche Bank analysts revise their target price for the stock to 3,790p, compared to 3,690 previously.
FTSE 100 fallers
l Barclays 179.35p (down 4.2p, 2.3 per cent) Declines with the wider banking sector as investors worry about the impact of the recent intensification in the European sovereign debt crisis.
l Smith & Nephew 540.5p (down 8.5p, 1.6 per cent) Deutsche Bank switches its view on Europe's largest maker of artificial hips and knees to "neutral" from "outperform", with a new 600p target price.
FTSE 250 risers
l Supergroup 652p (up 52.5p, 8.8 per cent) Superdry retailer soars on the FTSE 250 as investors move in ahead of its second quarter trading update on Wednesday; Peel Hunt analysts say "hold".
l London Stock Exchange 897p (up 24p, 2.8 per cent) Exchange operator overcomes the downdraft unsettling the wider market as speculators point to vague rumours of takeover interest from an American rival.
FTSE 250 fallers
l Rentokil Initial 66.3p (down 2.65p, 3.8 per cent) Cleaning to pest control company releases a disappointing trading quarterly update; Investec analysts reduce their target price for the stock to 75p from 87p.
l Shaftesbury 495.7p (down 4.3p, 0.9 per cent) West End-focused property company comes under pressure after Goldman Sachs analysts switch their recommendation to "sell" from "neutral".