Gold seen heading to new 20-year lows--traders
By Kenneth Barry
HONG KONG, Aug 25 - Gold headed toward new 20-year lows on speculative selling by funds and a growing trend by North American gold miners to hedge against price declines, traders said on Wednesday.
They said physical buying of gold, which set a record in the second quarter and benefited from economic recovery in Asia, was incapable of reversing the market's downtrend.
"The physical buying out of Asia is not enough to sustain the price of gold," a senior bullion trader said.
Spot gold was quoted at US$253.10/60 an ounce at 0430 GMT, approaching its 20-year low of US$252.20 reached on July 20.
Gold was lower after large hedging transactions from North American gold producers, said Jon Sutton, head of corporate risk management, commodities, at the Commmonwealth Bank of Australia.
"Traditionally North American producers have not been large hedgers of their gold price risk over the years," Sutton said.
But the impact on gold's price from central bank gold sales has forced U.S. and Canadian companies to reconsider, he said.
Newmont Mining Corp, the largest North American gold producer, recently said it bought put options which gave it the right to sell 2.85 million troy ounces of gold from August 1999 through July 2001 at US$270 an ounce.
Last week gold rallied after the World Gold Council reported physical demand for gold rose to a record 810 tonnes in the second quarter of 1999, which sparked short-covering that also boosted the price.
Gold rose to about US$261 but its failure to move higher disappointed the market, leading to selling by large funds in the United States that profit by selling gold short.
Persistent bearishness about central bank gold sales and fears of still more official sales to come have added to the downward momentum and worked in favour of those holding short positions in gold.
Britain will conduct its second auction of 25 tonnes on September 21 and Switzerland has proposed selling gold beginning next year. Another possible sale by the International Monetary Fund has encountered opposition.
Some investors in gold took the opportunity to reap profits by selling after U.S. interest rates were raised on Tuesday and U.S. stocks ended lower, a trader said.
While bullish news might push gold $10 or $20 an ounce higher, market players would sell on any such rally, and there was a good chance of the price falling to or below US$250 in the short term, the trader said.
In addition, producers were likely to sell on any uptick. "The basic trend is still down," he said.
Sutton said there was Australian producer hedging a couple of weeks ago when gold rose to A$407 an ounce, but the price was now below A$400 and the Australian hedging had ended.
Gold could dip to US$250 where it would find strong support, Sutton said, but concerns about the Y2K millennium bug problem could push the price up to US$270 by year's end, Sutton said.
yahoo.co.uk |
