To:Bobby Yellin who wrote (204) From: John Barendrecht Friday, Jul 4, 1997 10:48 PM Respond to of 79916
Aussie gold sell-off roils markets SYDNEY, Australia - The Reserve Bank of Australia announced Thursday night it has sold two-thirds of the country's gold reserves, a moved that sent worldwide gold prices tumbling.
The Reserve Bank said it sold 167 tonnes of gold.
It said the gold was sold over the last six months for an estimated $1.8 billion US at time when the price of gold bullion has been under severe pressure.
The sell-off followed a general trend of central banks off-loading gold reserves over the last two years, analysts said Friday.
But the news, announced overnight, surprised the overseas markets and contributed to a sharp drop in the price of gold, falling $7.60.
The August gold contract settled at 325.20 U.S. dollars an ounce, down $7.10, after trading to a 10-year low of $324.
"It shouldn't come as that much of a shock because of what the other central banks have been doing for the past two years, in other words, gradually off-loading their gold reserves," a Commonwealth Bank of Australia commodities analyst told Australian Broadcasting Corp. radio.
"There is also the long-term problem of the markets trying to come to terms with the fact that there's been an enormous change in inflation outlooks around the world.
"So the traditional people who use to buy gold as an inflation hedge are basically being forced to chase something that produces reasonable yields," he said.
The Reserve Bank of Australia now holds 80 tonnes, compared with 247 tonnes six months ago, which formed 20 per cent of its international reserves, which include foreign exchange.
The decision to sell the gold was made by the board late last year and follows selling by Canada, Austria, Belgium, the Netherlands, Portugal and South Africa.
The RBA insisted it had not disturbed the market in making the sales and said it did not plan to offload any more of its assets.
"The sales were made gradually, taking care not to disrupt market conditions," it said in a statement.
Treasurer Peter Costello approved the sell-off, which was prompted by the belief gold assets no longer gave the central bank enough diversity in its assets.
Tim Porter, a research analyst at Refco Inc. in New York, said Australia's gold sales "took the market by surprise."
There has been widespread speculation of gold sales by central banks. Many analysts pointed to the bank of Portugal as a source of sales but overnight the bank announced it had not sold any gold in the first half of 1997.
Some analysts believed Portugal would sell gold in an effort to meet requirements for European Monetary Union.
Porter said while Australia did not do anything "outlandish," the news gives bears "good reason" to sell.
He said he did not believe gold would fall below $300 an ounce and predicted there would be support at around $325 in the cash market.
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