London gold slumps on Greenspan inflation comment
November 7, 1997
LONDON (Reuters) - The value of gold fell to its lowest level in 12 years Friday after a comment from Federal Reserve Chairman Alan Greenspan persuaded bullion banks and investment funds to dump the precious metal.
Gold slumped to an afternoon fix of $308.70 per ounce, nearly $5 off its morning fixing. The fall was rapid and the quantities of metal involved vast, according to dealers.
"It went up a little on U.S. employment figures but after that it was just swept away. There was a lot of metal sold," one dealer said.
Gold sank in 1985 in tandem with a collapse in the price of oil. It had tracked oil higher to reach a record $850 an ounce early in 1980 -- when it was seen as a refuge from the inflation that been triggered by the OPEC oil "shocks" of the 1970s. Also that year a surging dollar undermined the metal's value.
The latest disillusionment with gold came into vivid focus when Greenspan said central bank research suggested that the U.S. consumer price index overstated the nation's actual inflation rate by about one percentage point.
"In the United States, a group of experts ... concluded that the consumer price index has overstated changes in the cost of living by roughly one percentage point per annum in recent years," he told a conference in Frankfurt.
"Researchers at the Federal Reserve and elsewhere have come up with similar figures," he added.
For dealers in gold -- for centuries the exemplar of a safe haven against inflation -- the news was catastrophic.
"Greenspan's suggestion that inflation in the U.S. was about 1 percent overstated was negative for gold," one New York-based dealer said.
"Gold's chance to rally was shot in the foot," a dealer said.
The market was still realing at a Swiss plan to sell up to 1,400 metric tons of gold, if referendum approval is granted.
On Thursday a Reuters poll of eight leading gold market analysts in London and Joannesburg, South Africa, revealed that most experts were looking for significantly lower gold prices continuing through 1998.
The experts cited average prices of between $300.00 and $350.00 per ounce next year.
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