fROM THE fINANCIAL pOST:
Saturday, October 25, 1997
Gold hammered
Producers hit hard as bullion plunges to 12-year low of US$307.30 on news
Switzerland may sell half its massive reserves
Gold weighs on Bay Street
By PAUL BAGNELL
Mining Reporter The Financial Post
Gold investors sent the
price of bullion into a
free fall on Friday,
panicking on news the
Swiss government may
sell more than half its
gold reserves.
Gold fell by a numbing
US$15.70 an ounce,
closing at US$307.30, a
12 1/2-year low.
The crash obliterated
the gains made in a brief
rally in late September and, with them, hopes for a meaningful recovery in this year's dismal
gold market.
The last time the world saw a gold price as low as Friday's was in December 1984.
The share prices of gold producers also fell sharply Friday.
The Toronto Stock Exchange's gold and precious metals subindex collapsed by 8.42%, closing
down 739.84 points to 8047.76.
Among companies, the biggest percentage losers were Euro-Nevada Mining Corp. (EN/TSE),
down 17.32%, or $4.65, to $22.20, and Pegasus Gold Inc. (PGU/TSE), down 14.01%, or $1.10,
to $6.75.
Canada's two major gold companies also suffered share price declines.
Shares of Placer Dome Inc. (PDG/TSE) fell 10.69%, or $2.80, to $23.40, on trading of 2.1
million shares. Barrick Gold Corp.'s stock (ABX/TSE), meanwhile, closed down 7.16%, or
$2.35, to $30.45, on volume of 1.3 million shares.
The carnage was touched off by news the Swiss finance ministry and the country's national
bank had approved in principle a plan to sell up to 1,400 tonnes of gold, or just over half the
country's reserves, to reduce the amount of gold backing its currency.
The amount is 1,000 tonnes more than what Switzerland has already said it will sell over 10
years to finance a fund for Holocaust survivors. The idea will be put to Swiss voters in a
referendum in 1999.
Gold production from mines around the world totals about 2,300 tonnes a year.
Sales of bullion by central banks have formed a dark cloud over the gold market this year. In
July, for instance, the price plunged when the Reserve Bank of Australia revealed it had sold
167 tonnes of gold during the first half of 1997.
Yesterday, analysts held out little hope for a near-term recovery.
Martin Murenbeeld, an independent analyst in Victoria, B.C., said the only thing that will give
gold a meaningful push is a crash in North American equity markets.
"It needs a crash of about 20% over a three-month period," Murenbeeld said. "Then you would
get a significant kick in the gold price -- up to 10%."
This week's Asian equity meltdown, however, is bad news for gold because it will likely
dampen jewelry demand in the region, he said. Asian jewelry purchases are a significant driver
of gold demand.
Murenbeeld said speculators betting on a price decline are once again building up large short
positions in bullion. This month's brief gold price rally was attributed to short sellers covering
their positions by buying the precious metal.
John Ing, president of Maison Placements Inc. in Toronto, said Friday's news was particularly
alarming to investors because Switzerland has traditionally been one of gold's staunchest
defenders.
Both Ing and a third analyst, Victor Flores of Marleau Lemire Inc., said investors should look
for low-cost, low-debt gold producers for investment possibilities.
Meanwhile, Echo Bay Mines Ltd. said Friday it is walking away from plans to buy a controlling
interest in the Kingking copper-gold project in the Philippines. Echo Bay, one of North
America's high-cost gold producers, is reviewing all its projects.
Gold weighs on Bay Street
Gold hammered
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