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

To: lorne who wrote (4172)	12/11/1997 11:05:00 PM
From: lorne	Respond to of 116893

Australia Gold Friday, December 12, 1997 Gold's long search for a floor By MATTHEW KIDMAN, Investment Editor How low can the price of gold go? Supposedly $US300 an ounce was the floor. But it turned out $US300 was a very flimsy floor. In New York on Tuesday night, the price of bullion fell $US5 to an 18-year low of $US281 an ounce before bouncing back to $US286. The marketplace hopes gold will see $US300 an ounce again but most people are talking about a price of $US270 in the short term and, possibly, $US250 in the not-too-distant future. "There are all sorts of numbers being bandied about at the moment and maybe it could go to $US250 an ounce," said one gold dealer. What makes the story worse is that the December to February period is traditionally when demand for gold is at its highest, with the big buyers ready to spend. The Chinese New Year is just around the corner and the Indian wedding season is hitting its straps. Yet still the price trends downwards. Why? As one market commentator said earlier this week: "We are now in uncharted waters and who knows how low it can be?" In other words, gold's value has never been determined by a simple supply-and-demand equation. Instead, the price has been kept artificially high by central banks around the globe who have held large reserves of gold as a store of value in the event of unforeseen circumstances. Gold demand usually outstrips supply by about 400 tonnes each year. This is made up by central bank selling. That is changing. Earlier this year, the Reserve Bank of Australia sold two-thirds of its reserves and the Swiss have indicated they might do the same. Instead of making upthe shortfall in supply, central banks may no longer use gold as a store of wealth. So what is stopping gold falling to, say, $US50 an ounce? To many, nothing. But those who follow the market closely believe we are close to the lows. Hartley Poynton resources analyst Mr Peter Main believes gold may fall to $US275 an ounce and no further. At that level he reckons about 50 per cent of gold production around the world would no longer be economically feasible. "I think we are very close to the bottom now. And the reason is that at some stage you will start to see a lot of gold producers closing down." Macquarie Equities analyst Mr Grant Craighead says central banks are still major gold owners and cannot afford the price to drop to ridiculously low levels. "The reality is central banks aren't sellers, and that should put a floor under the price."