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Gold price hits a meltdown
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July 7, 1997: 8:33 p.m. ET
The precious metal is losing its allure as a safe haven for central banks
From Correspondent Bill Tucker
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NEW YORK (CNNfn) - Gold holds a certain beauty, but it's not much of an investment these days.
An ounce of gold has fallen 24 percent in price so far this year to its lowest levels since the fourth quarter of 1985, and the outlook is not positive.
"The market's going to go lower," said Bette Raptopoulos, senior gold analyst for Prudential Securities. "Ultimately it will stabilize and then we can begin to see some sort of firming. But at this stage the outlook is extremely bleak because when Australia, a country that is a major producer, comes into the market and sells, that raises some unease."
The Australian central bank really shook up the market, selling $2 billion worth of gold last week and announcing it has sold more than 160 tons of gold this year. The bank says it no longer sees a reason to continue holding vast gold reserves.
Adding to that, European central banks are cashing in reserves to meet financial standards for joining the European Monetary Union. Gold, it seems, is no longer the safe haven commodity it once was.
"This may be the realization after a long period of time that gold is no longer the bedrock of the world's financial system," said Victor Lazarovici, gold analyst for Smith Barney. "And if it's no longer required as a reserve currency, then it makes sense for central banks to reduce their holdings of gold and convert to more profitable investments."
All of which has also taken its toll on gold stocks. Barrick Gold, Newmont Mining, Placer Dome, Echo Bay and Amax Gold --all are lower now than at the start of the year.
Contributing to Monday's selloff was news that a major South African gold mine is shutting down because its production costs were more than the price of gold. If gold prices continue to fall, more gold companies may decide that gold mining isn't worth the price.
Were Midas alive today, there's no way he would wish for everything he touched to turn to gold. He might, however, wish all the gold he touched turned into blue chip stocks.
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