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UK auction seen buttressing gold price
11/26/2001 7:53:00 AM
By Adrian Dascalu
LONDON, Nov 26 (Reuters) - This week's sale of 20 tonnes of gold by the Bank of England may put a floor under a weakening bullion market and eventually push prices slightly higher, analysts and traders said on Monday.
"There is some confidence coming back into the market," Frederic Panizzutti, head of research at the Geneva-based Golden Avenue, told Reuters.
"Once we have cleared the auction out of the way we might see the market move again. I don't say that everybodyy is turning bullish, but at the moment people see more upside potential than downside potential," he said.
Tuesday's sale of 20 tonnes of gold is the first in a fourth series of six auctions under the BoE's programme to reduce Britain's official reserves to some 300 tonnes.
Traders said an increase in short positions in the market in recent weeks might be positive for the auction.
Latest data from the New York bullion market had shown a huge reduction there in the net speculative long position as of November 13 -- down 25.2 tonnes to 16.9 tonnes.
The move was the result of a big fall in the number of long positions -- down 3,270 to 292,312 contracts -- and a large increase in short positions.
Further prices weakness since mid-November suggested further long liquidation and short selling and that the market had returned towards neutral and near its traditional net short position.
"Tensions are building on the upside. Unless the auction is a totally negative surprise in terms of subscription level and strike price, we expect the market to bounce back again...a couple of dollars at least," one trader said.
"We saw some physical activity at $272 an ounce...not exceptional, but sustained," Panizzutti said of early Monday trade.
"Next step (after the auction) might be $275, with resistance at $277."
Macquarie Research said in a report, "With the market now largely square, we would see prices looking to stabilise above $270.00 an ounce. There is the possibility of some modest firming in prices following the...auction given past patterns."
PRICES BACK TO LEVELS BEFORE SEPT 11
Prices had jumped to $294 after the September 11 attacks in the United States as investors sought a haven from crisis, but a firm dollar and the recovery of stock markets had since pulled gold back to pre-attack levels of around $272.
"However, the recent fall in prices on long liquidation and some short selling ironically should help for a better auction result, at least in terms of bid level and relative bid price if not actual price," analyst Kamal Naqvi of Maquarie Reserach said.
The last UK sale on September 19 was covered 2.6 times, up from a previous 1.3 times but well below a record eight times in September 1999.
"We could see gold prices firming as we they have done after the last three auctions. With a subscription of around 2.5 times and a reasonable price...that would be an indication of underlying interest," Naqvi said.
Ahead of the auction, with the exception of a brief tick higher in early Australian trade, gold was largely drifting sideways in sluggish Monday trade, dealers said.
"At this stage I see little change from the recent $272.50/274.50 trading range. It will stay so for the rest of the day," one trader said.
Traders expected market activity to remain thin ahead of the BoE sale, despite the return of players in the United States after the Thanksgiving holiday.
"Given...the general reluctance of participants to enter the market in the run-up to the auction, trading conditions are likely to remain subdued," one trader said.
Another urged caution.
"Any short covering after this auction will not have as much exposure as the rally after the last auction on September 12 and I would be very surprised if the market quickly absorbs the amount of gold being sold," he said.
He added: "I expect the market to come under pressure to the downside, but what happens after the auction is a difficult one, it all depends on where it comes in at."
By 1200 GMT spot gold <XAU=> was indicated at $272.90/273.40, little changed from the last close in Europe at $273.00/273.50.
Results of the UK auction will be available at about 1215 GMT on Tuesday, the BoE said.
Rtr 07:53 11-26-01
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Copyright 2001, Reuters News Service
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