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

To: Tom Byron who wrote (33542)	5/10/1999 2:45:00 PM
From: Alex	Respond to of 116779

Gold sell-off unwarranted Comment - By MALCOLM MAIDEN Britain's 715-tonne gold stash is insignificant by world standards, and its unsurprising decision to sell more than half of it should not have triggered the huge sell-off that rolled through Australian gold shares yesterday. Central banks have been tagged as sellers of gold for years, and Britain's gold holding is dwarfed by America's vast store of 8138 tonnes of the metal. The central banks of Germany, France, Switzerland and Italy, and the cash-strapped International Monetary Fund each holds between four and five times as much gold as does the UK. The 415 tonnes Britain says it will sell will be dribbled onto the market, with the first 125tonnes going off in lots of 25 tonnes every two months - a generous and transparent process that is the antithesis of our Reserve Bank's covert sale of 167 tonnes, which shocked the markets when it was revealed in mid-1997. The total amount the UK will sell equals about 11per cent of current annual gold demand, which in turn exceeds supply by almost 1000 tonnes a year. The sale is smaller still compared with the annual total world gold trade of about 38,000 tonnes a year, which includes derivatives. Central banks have been selling gold reserves and replacing them with higher-yielding blue-chip government paper for years, and that process will continue, and accelerate. The IMF is short of cash after its Asian bailouts, and will probably offload about 10per cent of its 3217-tonne holding in the next few years. Swiss voters have approved a constitutional change that allows the sale of about half of Switzerland's gold reserve of 2590 tonnes over the next five to seven years. This year's creation of the European Monetary Union will also in time lead to big sales by the larger European central banks. Only 15per cent of the new European Central Bank's reserves are in gold - well below the gold holdings key European nations maintain for their own currencies, including Germany (3701 tonnes of gold, 32per cent of total reserves) France (3184 tonnes, 50per cent of reserves), and Italy (2593 tonnes, 31per cent). And while it was the United States that signalled the beginning of the end of gold's role as the ultimate currency reserve when it abandoned the gold standard in 1971, its 8138-tonne gold cache still represents 57per cent of its total reserves, an ominously high ratio when compared with that being maintained for the modern new euro currency. All of that is known in the markets, and it is the main reason why gold has fallen in price by more than a third since early 1996, when it was selling for more than $US400 an ounce. Ahead of Friday's announcement of the UK sale program, the price of gold and of gold shares had been rising in the belief that stronger Asian economic performance would boost demand for the metal. That scenario is unaffected by the UK move. The central bank selling means gold is probably stuck below $US300 for the foreseeable future. But unless the banks rush to dump the metal (something that is not in their interests because it would depress the gold price) gold bullion and gold shares should recover from the emotional UK-inspired sell-down: local gold shares are only back to where they were on 5May, despite the size of yesterday's sell-off. theage.com.au