Alex, IMF sale IMO would signal a start of new era....However, the proceeds they intent to spend......who would let them? I think market would soon discount it as a cheap shot..
Gold surge shot down
by spectre of sell-off
By Stephen Wyatt
Gold's bogey man – the prospect of another round of central bank gold sales – suddenly raised its feared head yesterday and killed the gold market's recent upward price momentum.
At the same, base-metal markets slumped with copper falling to fresh 11-year lows, nickel to 11-year lows, lead and zinc testing four-year lows, and aluminium languishing just above its four-year lows.
These base metal markets were reacting to growing fears of sustained weakness in demand as a result of an inconclusive G7 meeting at the weekend. The G7 did nothing to counter the market's concerns about the slowing global economy.
And with this commodity price weakness went the Australian dollar. It had recently been buoyed by rising gold prices and comments by some analysts, like Merrill Lynch, that commodities may be hitting a bottom.
But the rally was nipped in the bud yesterday – base metals by the G7, gold by Mr Gordon Brown, UK Chancellor of the Exchequer.
Mr Brown raised the prospect of sales of gold by the International Monetary Fund. This was enough to knock gold down from its four-month high of $US302/oz to $US295.50/oz.
"The market got a bit spooked after good buying last week. The fresh nervous longs (fresh buyers) bailed," said Mr John Israel, bullion dealer with Macquarie Bank in Sydney.
At the same time, there was a slight acceleration in Australian gold producer forward selling, said Mr Mark Freemantle at Rothschild Australia.
And why not sell? After all, $A gold is over $A500/oz, a very attractive 2-year high.
Mr Brown, together with the Canadian Finance Minister, Mr Paul Martin, tried to reactivate the Heavily Indebted Poor Country (HIPC) initiative at last weekend's G7 meeting. This aims to relieve the debt burden of the world's poorest countries.
Back in 1996, when the gold price was over $US400/oz, this was hot news in the gold market. The proposal then was to fund the HIPC scheme by selling 5 million ounces of IMF gold.
This was one of the factors that centred attention on the massive amount of gold sitting in the vaults of the world's central banks and international bodies. About 32,000 tonnes, or a third of the gold ever mined, is still resting with these bodies.
But no IMF gold sales occurred back then because of strong opposition from Helmut Kohl's Germany. The gold price still collapsed due to central bank gold selling and the end of inflation. Gold fell to a 19-year low of $US273/oz last August.
However, a new German administration delivers hope that agreement may be reached to sell some IMF gold. While the UK Government is trying to hose down Mr Brown's initial statements, a nervous gold market is refocused on this gold stock overhang.
"This takes the wind out of the recent bullishness (in the gold market)," said Mr Allan Heap, a Sydney-based commodities analyst with Salomon Smith Barney.
But he pointed out that back in 1996, the 5 million ounces of IMF gold was to be sold over a number of years. "If resurrected, its impact on supply/demand fundamentals would be quite benign."
afr.com.au |
