Top Financial News
Mon, 27 Sep 1999, 3:23am EDT
Gold Posts Biggest Gain in Decade as European
Central Banks to Limit Sales
By Vaughan Scully
Gold Prices Soar as Central Banks Act to Limit Sales (Update1)
(Adds information on gold stock surge, comments from
producer from 5th paragraph).
Sydney, Sept. 27 (Bloomberg) -- Gold prices posted their
largest gain in more than a decade after a group of European
central banks said they will limit sales from their official
reserves to 400 metric tons annually for the next five years.
Gold for immediate delivery jumped as much as US$17.75 an
ounce, or 6.6 percent to US$286.50, the largest one-day rise in
at least 15 years and its highest price since May 7. The move
outpaced the 3.4 percent gain for gold following the stock market
crash in October, 1987.
''As far as the market is concerned, it's very positive,''
said Chris Hunt, manager of bullion services for Bank of Western
Australia in Perth. Concern that new sales could emerge, driving
gold prices down further, ''is now removed,'' he said.
A group of 11 central banks around Europe, as well as the
Bank of England, the Swiss National Bank and the Swedish
Riksbank, who together hold for about half the world gold
reserves, pledged to limit their sales to those that already have
been announced. Gold sales by central banks, particularly from
England and Switzerland, helped push gold prices to a 20-year low
of US$251.95 an ounce in August.
''It's quite a dramatic recovery. At the same time, (prices
are) at 20-year lows. It's about time it started coming back,''
said Niall Lenahan, finance manager of Goldfields Ltd. in Sydney,
which produces about 500,000 ounces of gold a year.
The surge today comes after a one-week rally that pushed
gold prices up US$13.75 an ounce, or 5.4 percent, after a sale of
25 metric tons by the Bank of England drew unexpectedly strong
demand and above market prices.
Central Bank Sales
With central bank sales now under control, the balance of
supply and demand appears much more favorable to higher gold
prices, Hunt said.
''The market can reasonably absorb'' the 400 tons of gold to
be divested from official reserves, Hunt said. ''There's a
probably 7 to 10 percent drop in production because of the low
prices. Add to that exploration is at five, six or seven-year
lows, and it leaves a handsome gap for the sales to fill.''
Shares in gold mining companies surged as well, with the
Australian Gold Index of 14 companies rising more than 17
percent, its biggest gain this decade.
Among Australian gold miners, Lihir Gold Ltd. jumped 31
cents, or 24 percent, to A$1.61 a share, while Normandy Mining
Ltd. rose 17 cents, or 15 percent, to A$1.31 a share. Newcrest
Mining Ltd. gained 70 cents, or 18 percent, to A$4.50 a share,
and Acacia Resources Ltd. gained 33 cents, or 13 percent, to
A$2.80.
Rate of Sales
Central banks have sold between 80 metric tons and 600 tons
a year for the past decade, Hunt said, so the future rate of
sales is ''nothing unusual.''
While the gains in gold mining companies is ''one the
industry welcomes,'' it won't lead to changes in future plans for
mine development and exploration until companies believe it will
be sustained, Lenahan said.
''I don't think a half a day recovery will necessarily lead
us to overnight modify our plans,'' he said. ''If the recovery is
sustained, it does ensure that some of the existing operations
which were previously becoming uneconomical, could be quite
economical at a higher price.''
Gold prices should keep rising, Hunt said, because traders
who have bet gold prices will fall are being forced to buy back
gold to cover their positions.
''I guess you could say US$295 if the market really takes
this as positive,'' he said. |
