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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: PaulM who wrote (36754)	7/7/1999 1:33:00 PM
From: Alex	Read Replies (1) \| Respond to of 116753

Golden days of conspiracy theory return By STEPHEN DABKOWSKI Is the slump in the gold price to 20-year lows that caused a rout in gold stocks yesterday an international conspiracy between the Bank of England and the US Federal Reserve to drive down the price of gold? That's what some traders and analysts believe. The start of the Bank of England's sell-off of 125 tonnes of gold, which sparked yesterday's gold sell-off, was the final straw for the conspiracy theorists. The respected US economist Mr David Hale, from Zurich Financial Services, is one willing to at least debate the issue. ''According to traders suspicious of central bank motives in the gold market, the world has recently been experiencing great asset inflation as a consequence of US monetary policy. Until recently, this asset inflation was led by the share prices of US technology companies,'' he said in a recent investment briefing. ''But in April, there was market rotation in favor of more cyclical-oriented companies, such as mining stocks and commodity-sensitive currencies such as the Australian dollar. ''There was also a rally in the copper price driven in part by speculative buying from hedge funds. It is quite likely this rally in traditional inflation hedge assets would have spread to the gold market had the Bank of England not startled the market with its announcement (of sales),'' he said. ''Many investors have therefore concluded that Her Majesty's Treasury was colluding with the US monetary authorities to restrain inflationary psychology in the marketplace by depressing the gold price. ''There is no conclusive way to prove that the UK and US Governments wanted to punish the goldbugs, but there is little doubt that policy makers were becoming concerned (in April) about inflationary psychology. ''The Federal Reserve board voted to change the bias in its policy directive towards restraint during late April. If the gold price had risen sharply, even Fed chairman Alan Greenspan might have been more apprehensive about the risk of resurgent inflation than his recent speeches have suggested.'' The conspiracy theorists' view is that the Bank of England brought forward its announcement of gold sales and did it in such a public and deliberate way so as to violate efforts by gold-producing countries to minimise disruption to the gold price. They did this to allow the US economy - the engine of world growth - to keep bubbling along without the threat of inflation. Mr Hale says the conditions were all set for a rally in the gold market earlier this year. In April, the futures market was ideally primed and the entire market capitalisation of the global mining industry had shrunk to the extent that even a small repositioning of US funds in their portfolios would have produced a large swing in mining equities. ''Indeed, in the days immediately before the Bank of England announcement, there was a significant rally in the price of Australian gold mining companies,'' he says. But all is not lost for the price of gold, according to Mr Hale. He believes three factors will help the precious metal to recover in value. First, Asian countries are now recovering and they are of critical importance because they represent over 50 per cent of final demand for gold compared with 12 per cent for the US. Second, he believes, the rationalisation under way in the gold industry, which has caused several mines to close, will help constrain gold supply. And third, he believes other central banks considering selling part of their gold reserves, not to mention the IMF, will cooperate to support the gold price because they'll want a fair price for their holdings. ''In fact, the Bank of England sale may ultimately be regarded as benign because it set the stage for more explicit coordination of official sales than has occurred so far,'' he believes. theage.com.au