Gold Soars as Central Banks Act to Limit Sales London, Gold posted its biggest gain in more than 14 years after European central banks said they will limit sales and lending of reserves in an effort to end bullion's slide to a 20-year low. Fifteen banks with half of the world's central bank reserves yesterday said they won't sell more than 400 tons of gold a year during the next five years. Today's 6.5 percent gain boosted shares in mining companies, many of whom have struggled to remain profitable while gold has fallen because of central bank sales.
``Nobody expected something this concrete and this good for
the gold price to happen,' said Frederic Panizzutti, head of
strategy at MKS Finance, a Swiss refiner and trader. ``With this
major supply problem out of the way, we may get a demand driven-
market, and demand is strong.'
Gold for immediate delivery jumped as much as $17.35 to
$286.50 an ounce, the largest one-day gain since March 1985 and
its highest price since May 7. The move outpaced gold's 3.4
percent gain on Oct. 19, 1987, when investors sought a haven from
a 23 percent drop in the Dow Jones Industrial Average.
A group of 14 national banks around Europe, including the
Bank of England, the Swiss National Bank and the Swedish Riksbank
said they will restrict their sales to those that already have
been announced. European Central Bank President Wim Duisenberg
unveiled the plan on behalf of the banks.
Past Sales
Gold dropped more than a third between the beginning of 1996
and August of this year as a spate of sales by countries such as
Belgium, the Netherlands, Australia and Argentina heightened
concern central banks worldwide wanted to unload their holdings,
which amount to more than a fifth of all above-ground stocks.
Still, traders cautioned that central banks who are not part
of the agreement, such as Russia and Venezuela, could unload gold
onto the world market.
``This agreement doesn't stop the smaller holders from
selling, and it must be very tempting for them,' said Tony
Warwick-Ching, an analyst at Virtual Metals Consulting Ltd. in
London.
The statement from the European banks was released at an
International Monetary Fund meeting in Washington, where
officials said sales of the Fund's bullion reserves to help the
world's poorest nations would be made outside of the open market
in an effort to help bolster prices.
Gold company shares in Australia and South Africa surged.
The Australian Gold Index of 14 companies rose 17 percent, its
biggest gain this decade. The 12-member Johannesburg All-Gold
Index climbed as much as 13 percent.
In Australia, Normandy Mining Ltd. rose 17 cents, or 15
percent, to A$1.31 a share. In South Africa, AngloGold Ltd., the
world's biggest producer, rose as much as 32 rand, or 9.7
percent, to 360 rand. Randfontein Estates Ltd. gained as much as
22 percent.
``It's quite a dramatic recovery,' said Niall Lenahan,
finance manager of Goldfields Ltd. in Sydney, which produces
about 500,000 ounces of gold a year. Yet prices are ``at 20-year
lows. It's about time it started coming back.'
Victory
The announcement marks a victory for mining companies, who
have sought a commitment on limiting sales from central banks as
countries such as the U.K. and Switzerland announced plans to
sell, helping push gold prices lower.
``This decision is a tribute to quiet diplomacy,' Warwick-
Ching said. ``There has been a constructive behind-the-scenes
effort to convince the big gold holders to commit to something
like this.'
The surge in the price of gold comes after a one-week rally
that pushed gold prices up 5.4 percent after a sale of 25 metric
tons by the Bank of England drew unexpectedly strong demand and
above-market prices.
Demand
With central bank sales now under control, the balance of
supply and demand appears favorable, analysts said.
In the second quarter of this year, world gold demand
reached a record 809.5 metric tons, up 16 percent from the year-
earlier period, led by a surge in sales in the U.S., Japan and
South Korea, the producer-funded World Gold Council said. It was
the third consecutive quarterly increase, the group said.
Japan bought 87 percent more gold and purchases tripled in
Southeast Asia and Korea. In the U.S., the world's second-largest
gold market, second-quarter demand increased 17 percent,
according to the group. Speculation in the gold market could now
be restrained, executives said.
The statement ``takes a lot of uncertainty out of the
market,' said Ferdi Dipenaar, executive director at Harmony Gold
Mining Co. Ltd., South Africa's third-biggest gold producer.
``The market will now be influenced hopefully by supply and
demand. This is really what we have been waiting for.'
Caution
While producers welcomed the agreement, gold mining
companies said the rise in prices would need to last before their
exploration and development plans changed.
``If the recovery is sustained, it does ensure that some of
the existing operations which were previously becoming
uneconomical, could be quite economical at a higher price,'
Lenahan at Goldfields said.
Gold prices could keep rising to $295 an ounce, said Chris
Hunt, manager of bullion services at the Bank of Western
Australia in Perth, because traders who have bet gold prices will
fall are being forced to buy back gold to cover their positions.
As of Sept. 21, speculators had sold 65,077 gold futures,
each equal to 100 ounces, on the Comex division of the New York
Mercantile Exchange in a bet that prices were headed lower, 2.4
times the number of contracts they had bought in expectation of
higher prices, according to the U.S. Commodity Futures Trading
Commission. |
