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Gold/Mining/Energy : Naxos Resources (NAXOF)
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To: mark silvers who wrote (8690)1/28/1998 3:56:00 PM
From: Henry Volquardsen  Read Replies (1) of 20681
 
Mark,
I think I posted somewhere on SI yesterday that I believe that gold has overshot on the downside and eventually the equilibrium price will be found between 350 and 400 (maybe 450). The key factor that I believe will bring us back there will be mine closings and slashed exploration budgets. It will take time but I believe it will happen. I also suspect we have seen the low for gold but we may retest it the coming months. The nature of the retest will be instructive.

I do not believe we will see ANY reversal in central bank selling. At one level blaming the current weakness on gold on central bank selling is mistaken. If you look at net official gold sales you will notice that cbs have been selling steadily for well over a decade. Net sales last year were pretty much the same level they had been for the previous few years. The impact of the selling last year was heightened because of increased market focus on the issue for a few reasons. The first were gold sales from European central as they tried to reduce their deficits prior to EMU entry. The constant fear that several European central banks might sell weighed on the market. There was also a public dispute between the Bundesbank and The German Finance Ministry. While this arguement was more about currency reserves it led to some concern that the Bundesbank might consider gold sales. The final nail came when a Swiss group recommended that the central bank sell gold. While the govenment later said they had no plans to sell any gold other than to finance the Holocaust Survivors Fund until after 2000 they did indicate they might sell then. What really hurt market psychology however was a statement that they recognized gold now was not the best asset for central bank reserves but saw no reason to sell what they currently owned. For the gold market having the Swiss say that was the equivalent of the Pope saying he no longer believed Christ was the son of God but was going to continue to wear his crucifix because he has already paid for it. Caused a real crisis of faith.

So I believe central bank selling will continue. There is no chance near term of their being net buyers. But the impact on the markets was largely psychological and over done.

Henry
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