Gold falls to 3-year low on poor demand

PUBLISHED : Saturday, 04 January, 1997, 12:00am
UPDATED : Saturday, 04 January, 1997, 12:00am

Gold slumped to a three-year low yesterday, as analysts began warning that lower prices could emerge in the first quarter of the year.

In the London morning fix, gold was set at US$364.30 an ounce, down from a close of $366.55.

The move was later followed by other precious metals, including silver, which hit a 21-month low of $4.70.

'This is the beginning of the end,' Ted Arnold, a bullion analyst at Merrill Lynch, said. 'I would not be surprised if we see $330 sometime this year.' Physical demand, particularly in Hong Kong and China, which are among the world's largest consumers, had slowed down significantly, with potential investors viewing gold as still expensive in local currency terms.

'I think this is a very debilitating feature of the market,' Tony Warwick-Ching of research group CRU International said.

'People are going to stand back and wait for a lower price,' Mr Arnold said.

'We are looking increasingly at a market where Asian [gross domestic product] is growing strongly, but the demand for gold is not growing with it.' Some dealers cautioned that if the price went too low, gold would attract the attention of investment funds, which last February powered the price to more than $416 an ounce.

'It may actually be a little too early to tell whether we are in for a sustained bout of selling,' one analyst said.

'A lot of players are still away for the New Year break and so we really do not have a true picture of sentiment on the market.' Mr Warwick-Ching said he felt the price might only fall to about $350, before recovering.

'There is a lot of concern and nervousness about it, and it could be looking bad. There have also been well-founded rumours of central bank sales, for quite some time now,' he said.

Gold's diminishing role as a hedge against inflation was reinforced yesterday, as it failed to respond to figures released on Thursday showing that US manufacturing activity had picked up markedly.

Equity and bond markets slumped and the fall in gold seemed to further testify to the fact that it is no longer seen as a safe haven currency.