To:John Barendrecht who wrote (316) From: mikesloan Tuesday, Jul 8, 1997 11:56 AM Respond to of 80033
Central banks hold key to sliding gold markets Australian Financial Review July 9/97
By Stephen Wyatt, Commodities Writer
The wave of selling that has driven the gold market to its lowest level in 12 years has left bullion dealers nervously watching for signs that more central banks are starting to sell their reserves. The recent sale of 167 tonnes by the Reserve Bank of Australia, which triggered the latest slump in the price of gold, does not even scratch the surface of the 34,000 tonnes held by the world's central banks and international organisations.
The US alone holds 8,100 tonnes, followed by Germany with 3,700 tonnes, France with 3,182 tonnes, Italy with 2,592 tonnes and Switzerland with 2,590 tonnes.
According to Mr Andy Smith, a precious-metals analyst with investment bank UBS, the market believes the central banks' gradual sales will depress the gold price further, although they will not entirely dump their holdings.
Australian gold companies' share prices took another battering yesterday. The Australian Stock Exchange's Gold Index -- a measure of Australia's main gold stocks -- fell 6.4 per cent, dragging the All Ordinaries Index down 33.8 points to 2679.2.
The Gold Index has now lost almost 40 per cent of its value this year. Its equivalent in the US -- the Philadelphia Gold and Silver Index -- has dropped 44 per cent.
Nevertheless, the gold price firmed in New York on Monday night to close around $US318 an ounce, $US3.50 above its low. Asian markets held that level yesterday.
"A close above $US325/oz is needed to bring any positive sentiment back to this market," said Mr Mark Freemantle, a bullion dealer with Rothschild Australia.
UBS's Mr Smith suggested that rather than denying any downsizing -- as central banks have been doing -- and then suddenly selling a couple of hundred tonnes, it would be much more constructive to organise a transparent international auction system.
"This would eliminate a lot of the uncertainty", he said.
The big sale by the Reserve Bank of Australia is far from being the only factor to drive the recent big slide in the gold price.
"It's the commodity funds now doing the selling," Mr John Israel, chief bullion dealer with Macquarie Bank, said.
"But with the stockmarket up and inflation low, why would you be buying gold anyway?"
On top of the commodity fund selling has been aggressive Australian producer selling.
"Producer selling is across the board with rumours of a million-ounce deal," said one Australian bullion dealer, who asked not to be named.
"It's not that the recent price fall has changed their [the producers'] view on gold. They have been hefty sellers anyway." It's just a continuation of sell hedge programs.
Indeed, Australian producers are among the best-hedged in the world. At the end of March, Australian gold producers had forward sold (hedged) a record 983 tonnes of gold. This represented 2.8 years of production, according to Macquarie Equities in its latest gold survey. While it hasn't fallen as far as gold, silver has also been sold off, dropping to a near four-year low of $US4.44/oz yesterday -- a price slump of about 21 per cent over the past four months.
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