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FOCUS-Gold soars as ECB statement revives sentiment
Reuters Story - September 27, 1999 02:26
By James Regan
SYDNEY, Sept 27 (Reuters) - Gold soared in frantic Asian trade on Monday as
European central banks eliminated much of the uncertainty undermining world
bullion markets in a statement pledging to cap sales over the next five
years.
By late afternoon in most Asian trading centers, bullion had jumped some $16
an ounce from the close in New York on Friday and was about $33 higher at
around US$285.00 than a 20-year low hit just one month ago.
In a policy statement on Sunday, the ECB said its 15 central bank members
would abide by a cap on gold sales of 400 tonnes a year and a total 2,000
tonne ceiling over five years.
Traders said activity was heavy and short-covering was swiftly pushing up the
price, although profit-taking was seen at the higher levels. At 0600 GMT,
bullion was quoted at US$282.75/283.75, compared with the last quote in New
York on Friday at US$268.50/269.00.
The gains were likely to continue as the market digested the news and
responded to the changed circumstances regarding central bank sales, most
market observers predicted.
"This is a very important development," said Keith Goode, gold analyst for
Bell Securities Ltd in Sydney.
Gold will remain an important element of global monetary reserves and the
banks have agreed not to enter the market as sellers, with the exception of
already decided sales, the statement by European Central Bank and the central
banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and
England said.
"The gold sales already decided will be achieved through a concerted
programme of sales over the next five years," the statement said.
In Europe, the world hub for so-called physical trading of gold, metals
dealers are expected to read the ECB policy as "keeping more gold off the
streets," said an Australian dealer.
"Less gold means higher price, simple as that," he said.
Observers also speculated that the action could persuade gold mining
companies to finally curtail forward sales hedge programmes, long blamed for
erecting an artificial ceiling on bullion prices.
"It does change the outlook," said Dick Gazmararian, executive vice president
of Republic National Bank of New York, in Hong Kong.
"It might encourage producers not to hedge as readily as in the past if they
feel there is not a large potential overhang of central bank gold sales," he
said.
Copyright 1999 Reuters Limited. All rights reserved. Republication or
redistribution of Reuters content is expressly prohibited without the prior
written consent of Reuters. Reuters shall not be liable for any errors or
delays in the content, or for any actions taken in reliance thereon.
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