"US investment funds that have been selling gold short"
Gold: Price below $300 for first time in 12 years
From the Finantial Times: THURSDAY NOVEMBER 27 1997
By Kenneth Gooding, Mining Correspondent
The price of gold fell below $300 an ounce yesterday for the first time in 12« years.
US investment funds that have been selling gold short - selling gold which they do not own and in effect betting on the price falling -
will now attempt to push it down to about $285, analysts suggested.
The funds have been benefiting from fears that other central banks will sell more of their gold reserves. The banks and other official
institutions own about 35,000 tonnes of gold, enough to meet present demand for 10 years.
These worries have been putting pressure on the price for more than a year, but the slide became steeper after Australia's central bank announced in July it had sold two-thirds of its gold reserves in the previous six months.
The idea that one of the world's big gold producing countries could take such action shocked many observers. "Gold is acurrency looking for a new fair value," said Andy Smith, analyst at Union Bank of Switzerland. "There is no floor for the price, just a trap door."
Paradoxically, demand for gold is at record levels. The World Gold Council, a promotional organisation financed by a number of producers, said demand in the markets it monitors - accounting for 80 per cent of the global total - was up by 11 per cent to a record 2,119 tonnes in the first nine months of this year. Analysts suggested yesterday that the turmoil in Asian stock markets was taking its toll and there were signs that some important gold markets had become net sellers.
Rhona O'Connell, analyst at specialist mining stockbroker T Hoare, suggested physical demand was playing no part in gold's fall.
"The funds were looking to drive the price below $300 and we are now there. They are now looking for $285, so we will probably get there before long. Typically, when markets are very volatile, the day-to-day buyers tend to stand back."
Mr Smith saw yesterday's fall as "just another chapter in a story that has been unwinding for two years". Low prices have forced the closure of some gold mines and projects have been shelved.
The price was fixed in London yesterday afternoon at $297.
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