Thursday May 24, 2:31 pm Eastern Time
Gold shakeout on Russia sales news seen an overreaction
By Alden Bentley
NEW YORK, May 24 (Reuters) - News of possible Russian gold sales sent tremors through bullion markets Thursday, but North American traders and analysts said fears of a new round of central bank sales were overblown, predicting some bulls would hang tough.
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On the COMEX division of the New York Mercantile Exchange, profit taking knocked gold futures some $12 off morning highs after President Vladimir Putin was quoted by Russian news agencies as opening the door for Russian gold and gem sales to help victims in flood-hit eastern Siberia.
``It was definitely an excuse for funds to start getting a little bit out of their longs,'' said a New York bullion dealer. "I don't know if there's any validity to it because it's going to take a while for this actually to go through.
``I assume Russia is going to be slow as with anything else they try to do. So I see it going to bounce from down here.''
In the morning, June gold was up more than $4 before the story from RIA Novosti sent the active contract skidding to $276. At 1:39 p.m. (1349 EDT) Thursday it was at $279.80, down $4.20.
Before it steadied, Thursday's shakeout put gold at its lowest since Friday, when funds were jumping into futures, lighting a fire under a subdued rally and catapulting the contract to a 10-month high at $298.60.
``I think it was being misinterpreted,'' said analyst Cristina Mingorance at futures trading house Refco Inc. ``People were going ballistic, saying 'Russia is going to sell gold to ease liquidity to the market' and 'they are under pressure from the dealers.' But it shot down and then came back up again.''
Gold has only just found its legs in recent months after struggling near the 20-year price lows of 1999 all spring.
It remains extremely skittish about central banks, having digested gold sales from the likes of Britain, Switzerland, the Netherlands, Austria and Canada in recent years.
Only two week's ago the futures market was still oversold.But the wild technical buying of recent days, much of it triggered by computers as prices broke above long-standing chart targets, loaded funds with their first net long position since last summer.
Putin said he would sign a decree ``if a clear scheme is presented to me, intended to help people now on the streets.''
George Parrill, vice president at ScotiaMocatta in Toronto, said that was a big ``if'', explaining the market reaction as knee-jerk liquidation of weak longs.
Russia is the 15th largest holder of gold, according to the World Gold Council. There was no timetable given and no indication of how much of Russia's 389 tonnes could be sold.
``It's not a done deal,'' Parrill said of the Russian news. ``It could be back at $285 again tomorrow. That's the kind of market we have.''
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