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Gold lower before U.K. sale
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July 5, 1999: 8:15 a.m. ET
Traders hesitant prior to Britain's auction of half its reserves
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LONDON (CNNfn) - Gold prices were slightly lower in London Monday, the day before the beginning of Britain's auction of about half its bullion - a move whose announcement in May set off a sharp decline in gold prices.
Tuesday's sale by the Bank of England will mark the first of five staggered auctions aimed at trimming the central bank's total reserves by nearly 60 percent, from a current level of 715 metric tons to 300. The total sale is valued at $6.5 billion.
The central bank's announcement on May 7 triggered an immediate slump in the gold fix as traders anticipated a broader selldown in reserves by the world's central banks -- which collectively hold only a quarter of the estimated 134,000 metric tons of gold reserves above ground.
The gold fix has fallen from around $281 before news of the auction to a two-decade low of $258 last month. On Monday, gold was fixed in London at $262.85 a troy ounce, slightly below its Friday fix of $263.10.
Rhona O'Connell, a metals market analyst with T. Hoare & Co. in London, said she expected no movement in gold prices Monday as jittery traders awaited the results of Tuesday's auction of an initial trance of 25 metric tons.
The market, O'Connell said, is currently speculating that the auction has been three to four times oversubscribed. Should the actual number of bidders end up exceeding that estimate, gold prices may get a boost, she said. A weaker turnout would have the opposite effect.
"The funadamentals are good enough to support gold at $260 anyway," O'Connell said, noting that traders were reluctant to make any significant moves before the Bank of England details the results of Tuesday's auction.
"Everyone is basically holding," she said. "One would normally expect this, (though) this (auction) has caused more problems than usual…because we invented the gold standard." She added that most traders believe the disposal is "purely and simply a political decision" taken by the U.K. government over the objections of the Bank of England itself.
The U.K. Treasury plans to swap the reserves for overseas currency denominated in dollars, yen and Europe's fledgling single currency, the euro.
Despite the price fragility since May, many analysts blame the current fragility in the fix to psychological pressures on the market that often seem to defy market realities.
Over the past decade, analysts note, only five central banks -- in Argentina, Australia, Belgium, Canada and the Netherlands --have disposed of substantial gold reserves.
Excluding reserves held by the new European Central Bank, the International Monetary Fund and the Bank of Commercial Settlement, Britain's central bank currently holds 23 million ounces, or just over 2 percent, of global central bank reserves.
--from staff and wire reports
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