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No glitter in gold these days
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August 27, 1997: 2:13 p.m. ET
Prices of the precious metal have fallen steadily this year
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NEW YORK (CNNfn) - Gold is a safe haven no more. Its luster has been tarnished by the long-running bull market in stocks and by the best outlook in decades for low inflation.
The precious metal has been suffering since February when the speculative bubble surrounding Bre-X Mining and its alleged Indonesian gold find burst.
In the midst of gold's seasonal summer slump, a more serious negative trend is developing, as several central banks are reconsidering their commitments to gold in an already weakened market.
"The total sold is not serious. It can be absorbed, but the perception that other banks may sell and the fact central banks have diminished their commitments to gold is the bearish factor and it is a serious bearish factor," said Bette Raptopoulos, senior metals analyst for Prudential Securities.
Australia's sale of gold reserves last month rattled a shaky market, and threats of further large sales still loom, as many European countries are expected to sell in preparation for the European Monetary Union. Asian central banks, which are battling currency speculators, may also join the list of sellers.
All the pressure on gold prices has hammered gold-mining stocks.
"Since making recent highs in February, gold stocks have continuously come down in price," said Victor Lazarovici, a gold analyst for Smith Barney. "We have reached a level that is uncomfortable for the industry. Some of the higher-cost producers are starting to feel the pinch."
When gold producers feel the pinch, they often sell inventory, capping any upside run for the metal.
Certainly, recent volatility in the stock market has drawn a few investors back to gold, lifting it from its yearly low of $317 an ounce. But few expect gold to return to $400 an ounce unless the bottom falls out of stocks.
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