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Gold in correction mode
20/02/2002 23:12 - (SA)
New York - COMEX gold continued to backtrack on Wednesday as traders considered whether Bundesbank remarks concerning possible German gold sales would open the door to official disposals by other erstwhile gold supporters.
"It certainly worried a lot of people that other European countries will want to jump on the bandwagon too," said Ian MacDonald, head of bullion trading at Commerzbank. "Germany is considered to be one of leaders in Europe."
April gold fell $1 to settle at $292.60 an ounce, trading from $294.60 to a 15-day low of $291.10 on the back of Tuesday's shakeout of $5.30.
Spot gold closed at $291.90/2.90, down from $292.95/3.95 late Tuesday. London's afternoon fix was $291.30.
The unexpected insertion of Bundesbank sales into the gold market's vocabulary sowed confusion and the liquidation of long positions, but left bulls clinging to hopes that prices could head back up after an overdue correction.
A spokesperson for the German central bank told Reuters on Wednesday that it had no plans to sell large amounts of gold in the near future and that Germany is abiding by a 1999 agreement curbing central bank disposals.
But he made no promises beyond 2004, when the so-called Washington Agreement, a five-year pact limiting European government sales to 400 tons annually, expires.
Almost the entire 400 ton annual quota has been taken up by sales programs by Britain, Switzerland and the Netherlands, although the Bank of England's last scheduled bullion auction is next month.
The spokesman was clarifying Tuesday's market-rattling remarks by Bundesbank President Ernst Welteke in an interview with Bloomberg News, in which he said Germany could slowly sell some of its gold to diversify its reserves into higher-yield assets.
"In truth they can't do anything for a while, so maybe this thing isn't going to damage it as much as first thought," said James Pogoda, a vice president of precious metals at Mitsubishi International Corp.
April gold rose to $309.40 two weeks ago and spot hit a two-year high of $307.50 as funds bought aggressively, believing that low US interest rates and reduced hedging by some large producers were the perfect environment for a gold rally.
The last time gold was that pricey occurred in February 2000 in the aftermath of the central bank pact announced in September 1999 at a meeting of finance officials in Washington DC.
Gold spiked to almost $340 an ounce, from around $270, after the gold accord. But the specter of central bank selling has continued to impede gold rallies.
With 3 500 tons, Germany is the second largest holder of gold after the United States. As recently as 1999 it stood alongside France and the US against selling gold.
It did sell 12 tons in 2001, under the auspices of the gold pact, for a commemorative Deutschemark gold coin, and plans to sell a similar amount to mint a euro gold coin.
The market expected the pact to be renewed before 2004, possibly with even more signatories.
Independent commodity analyst Greg Weldon suggested in a client note Wednesday that "officialdom" saw Germany as angling to get a sizable share of official sector sales when the accord is extended before its expiration.
"In other words, the posturing in terms of future sales has already begun," he wrote.
"Further, with the Swiss and UK being devoid of gold by then, the Bundesbank, along with the Bank of France and the Bank of Italy, are left as the primary, would-be, official sellers (apart from the US of course,)" continued Weldon.
- Reuters
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