11:12 a.m. Jul 08, 1998 Eastern
By Patrick Chalmers
LONDON, July 8 (Reuters) - Gold fell two dollars on Wednesday after
European Central Bank (ECB) president Wim Duisenberg gave more details
about its role as a euro-reserve asset.
The Dutchman said gold would make up 15 percent of the new bank's
planned 39.5 billion Ecus ($43 billion) of reserves, adding that the
decision had no implications for overall central bank gold reserve
levels.
One analyst said the immediate sell-off after the news reflected
disappointment that Duisenberg had not mentioned any freeze on central
bank sales by euro countries nor made clear how reserves would be
managed, as some dealers had expected.
''I think that maybe there were some buyers hoping there would be some
comments regarding the ECB reserve management rules,'' said Kamal Naqvi,
precious metals analyst at Macquarie Equities Ltd.
''New York had expected fairly supportive words on limiting gold sales
and obviously that's not been realised,'' he said, adding that gold's
share in reserves was already in the price.
''The fact that its 15 percent rather than 10 percent is no great news.
I guess that its marginally better but given that the news was already
factored in, they more or less ignored it,'' he said.
Avinash Persaud, global head of foreign exchange and commodities
research at J P Morgan, said further market falls were likely once
people realised that 15 percent could become a marker for all central
banks within the euro zone, not just the ECB itself.
''The ECB's share is actually quite a small part of the total reserves.
Fifteen percent will probably become a benchmark, not just for the ECB
but for all the central banks involved,'' he said.
''I think what's going to happen in Europe is that we are going to see
the creation of two distinct pools of reserves, one of which is the
ECB's 50 billion Ecus and the other, much greater part, which will be
held by the national central banks for investment returns rather than
for liquidity and (currency) intervention,'' Persaud added.
And that, he said, meant a likely return to last January's
18-1/2-year-low of $276.50.
''We continue to believe that we will revisit the 18-year low in around
September. Clearly the gold market is being driven by a number of
factors, the central banks question is one, dollar/yen is another,'' he
said.
Rhona O'Connell, precious metals analyst at brokers T. Hoare & Co,
disagreed, saying the 15 percent chosen compared well with average
holdings around the world.
''This is at the upper end of the previously stated range and exceeds
the world average weighting of 13 percent (with gold valued at $290),''
O'Connell said in a market commentary.
She highlighted Duisenberg's remark that the ECB decision had no
implications for central banks gold holdings overall.
''This implies that a degree of autonomy over reserve management will
continue to accrue to member nations and on that basis the market will
probably react neutrally.
''Although few member nations can be seen as possible sellers in the
future, the market remains frightened of such developments and will
remain nervous until the outlook clears,'' she added.
Duisenberg himself said on Wednesday that dollars, gold and other
reserve assets held by national central banks would be brought under
indirect ECB control by the end of 1998.
Peter Hillyard, vice president of the commodity trading group at Bank of
America, said Wednesday's news, and the market's reaction to it, were
fairly insignificant.
''I think there was a hope that the ECB would veto any sales by the
national central banks,'' Hillyard said, adding that dealers had not
interpreted Wednesday's news that way.
''The market seems to have considered that this gives the banks a free
rein but has it changed anything? I'm not so sure,'' he said.
''There's nothing here that's new, I think the market's been looking for
a reason to sell,'' he added.
Gold was last trading at $292.60/$293.10, a dollar down on its level
before the ECB statement and $2.50 off New York's Tuesday close.
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