Cen.banks should raise gold interest rates- Kebble
09:19 a.m. Jun 23, 1998 Eastern
BARCELONA, Spain, June 23 (Reuters) - Central banks lending gold to the
market should raise their rates, flushing out those profiting from gold
's discount on money and stabilising spot prices, JCI's Brett Kebble
said on Tuesday.
''Gold price instability has been caused by a flood of liquidity
resulting from an abuse of the low lease rate scenario,'' said Kebble,
executive director at the South African mining company JCI Gold, in a
speech to the Financial Times gold conference in Barcelona.
''It is the interest rate differential between gold and dollars which
causes miners to hedge and it gives the speculators a fabulous array of
ammunition to destroy the gold price,'' he said.
Central banks themselves would benefit as rising prices increased the
value of their reserve gold holdings.
''Rates of say five to six percent would still enable producers who
wished to protect their downside and start new production,'' said
Kebble, adding that such a move could raise spot prices by 15 percent.
''I'm sure that central banks are getting tired of giving fortunes to
gold miners and speculators alike.
''When Europe realises that it holds the cards in the lending market and
that the price of gold is going to be highly elastic to any increase in
the gold interest rates, you might find that the interest rate trend
begins to change very quickly,'' he said.
The 11 countries in at the start of the euro, namely all those in the
European Union minus Britain, Denmark, Greece and Sweden, carry between
them more than 12,000 tonnes of gold, a third of the world's official
sector holdings.
One central banker at the conference, who asked not to be named, said he
doubted that things were as simple as just raising the gold interest
rate.
''The issue is more complicated than that,'' he said.
Terry Smeeton, former head of treasury at the Bank of England, told
Reuters later that while Kebble's remarks on increased European Central
Bank (ECB) coordination were accurate, it was not possible to generalise
when it came to the intentions of central bankers around the world.
''It's a mistake to think about central bankers as being homogenous,
they come at the market with different motives,'' he said.
''The European central banks, certainly the ins (those 11 countries at
the euro's debut), are moving towards a sort of investment trust
position,'' he said.
But Smeeton disagreed with the suggestion that central banks could
significantly increase gold lending rates, citing their differing
motives and limited access to borrowers.
''Central banks only lend to good-quality credit counter-parties i.e.
banks. They have no knowledge of where the gold is subsequently
deployed,'' he said. Rates were better now than they had been.
''1.5 percent compared with the 0.25 percent of eight years ago is not
derisory,'' he said.
Copyright 1998 Reuters Limited. |
