Gold hits 18-1/2-year low on deflation fears
07:20 a.m. Jan 06, 1998 Eastern
By Patrick Chalmers
LONDON, Jan 6 (Reuters) - London gold fixed at an 18-1/2-year low on
Tuesday on the back of overnight losses after selling by funds betting
on lower prices and by gold miners hedging future production, dealers
and analysts said.
Whereas central bank sales drove funds' short strategies during most of
1997, concerns about U.S. deflation, underscored at the weekend by U.S.
Federal Reserve chairman Alan Greenspan, prompted the latest sales of
gold, a traditional hedge against inflation.
Gold fixed at $281.80 an ounce, the lowest since the afternoon fix of
$281.35 on July 3, 1979, and breaking the recent fix of $283.00 seen on
the afternoon of December 12.
''The big move came from New York, that's basically fund-driven
movement,'' said one London precious metals analyst.
Investment funds have regularly gone short on gold in recent months,
selling gold they do not own with the intention of buying it back at a
profit when prices fall further.
''There was also some weakness overnight, which would have been from
Australian producer selling,'' the analyst added.
The holiday period had offered some respite to gold as funds closed off
short positions in end-of-year book-squaring and producer selling and
central bank lending tailed off.
''Most people were expecting that there would be downward pressure as
the New Year started after short-covering during the holiday period.
However added to that, the significant factor has been Greenspan's
remarks on the economy. Several dealers did not think that had been
factored into the gold price,'' the analyst said.
Greenspan on Saturday told the American Economic Association's annual
meeting that some observers had begun to question whether deflation was
now a possibility.
Added to that on Monday was news of a South Korean campaign to get
private citizens to sell their gold to boost the country's dwindling
foreign exchange reserves.
While dishoarding by private investors hit by Southeast Asia's financial
woes had already been widely reported, such a public campaign in Korea
and a similar effort by the Thai military has raised the stakes.
''The Korean story might not be important in terms of market
fundamentals but it did hurt sentiment. It indicated in quite some
detail the idea that selling across Southeast Asia generally could be
quite significant a) because there's selling and b) because there's now
unlikely to be much buying,'' the analyst added.
South Korea's Housing and Commercial Bank, a main sponsor of the
nation-wide campaign launched on Monday, has now imposed restrictions on
what it would accept after the first day brought in an estimated 3,314kg
of gold worth an estimated $33 million at current market prices.
Technical analysts put market support for spot gold, which was last at
$282.00/$282.50, at below the previously cited level of $280.00.
''The $280.00 level is just psychological support -- there's no actual
support there,'' said technical analyst Karen Jones of Credit Suisse
First Boston.
''There's nothing between here and $272-$271,'' she said, citing
Fibonacci projections.
On the upside, strong resistance was seen at $284.75, which previously
was important support.
The U.S. dollar shot to a fresh 5-1/2 year high against the yen and
firmed against other Asian currencies, making gold more expensive in
dollar terms and encouraging sales from producers outside the U.S.
dollar zone.
This Thursday, the influential Gold Fields Mineral Services is due to
present its first estimates of supply and demand in 1997, which could
throw further light on what central banks have been up to in terms of
reserve sales.
A GFMS report last September, which talked of 200 tonnes-worth of
reserves having been sold by a central bank ''probably of European
origin,'' knocked several dollars off spot gold.
News of further central bank activity, or confirmation of last
September's report, would not help the already battered sentiment
towards gold and could fuel short position-taking.
((Patrick Chalmers, London Newsroom +44 171 542 8057.
london.commodities.desk+reuters.com)) |
