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Gold price at 20-year low
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May 19, 1999: 7:51 a.m. ET
Fears of further central bank sales send bullion below $273 an ounce in London
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LONDON (CNNfn) - The price of gold was fixed at a 20-year low of $272.85 a troy ounce in London Wednesday as fears of a broader selldown of official global reserves continued to stalk markets in the wake of Britain's announcement to sell more than half of its gold horde.
On May 7, the U.K. Treasury touched off a sharp downturn in gold prices after unveiling plans to unload 415 metric tons of its 715 metric tons over the next two years in a sale valued at $6.5 billion. The Bank of England intends to dispose of the gold at five separate auctions beginning July 6.
The U.K. Treasury said it will replace the gold with overseas currency denominated in U.S. dollars, euros and yen.
The announcement led to a 1.7 percent drop that day, and the downturn continued as bullion dealers and investors interpreted the sale as a sign that gold was falling out of favor with central banks.
Wednesday's fix was 0.8 percent below Tuesday's fix of $275.05 and the lowest level since May 1979.
Some analysts said the drop in gold prices defied logic since only five central banks -- in Argentina, Australia, Belgium, Canada and the Netherlands -- have sold significant gold reserves over the past decade.
Gary Mead, the head of research at the World Gold Council in London, said annual demand of gold has actually exceeded total mine production by 1,119 metric tons a year. The differential has been covered by recycled scrap and net sales from central banks.
Mead and other suggest that the gold market is especially vulnerable to psychological pressure.
"The Bank of England is selling, so everyone is running to the exits," he said "The fear of the market is that if some of the central banks indicate a determination and will to sell, logically there must be others."
Mead said that of the estimated 134,000 metric tons of gold reserves currently above ground, only 34,000 tons are in the so-called "official," or central bank, sector.
In a related development, Bank of France chief Jean-Claude Trichet said Wednesday the United States, Germany, France and Italy -- four of the six largest global gold holders, according to the World Gold Council -- were all opposed to selling their gold reserves.
Asked at a news conference in Paris where he stood on central bank gold sales, Trichet said: "I will simply say that as far as I am aware -- and this is not just the position of the Bank of France and our country, but also the postion of the Bundesbank, the Bank of Italy and of the United States, and these are the four main gold stocks in the world -- the position is not to sell gold."
--from staff and wire reports
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