Further selling to force down gold
SPECULATORS are expected to attempt to drive the gold price even lower this week, after a 12-year low was reached on Friday.
The sale by the Reserve Bank of Australia (RBA) of 167 tonnes of gold, more than two-thirds of its gold reserves, has signalled a new selling phase for the yellow metal.
In London on Friday, gold closed at US$324.50 per ounce, down $7 on the day. The direction taken by New York's Comex when it re-opens tomorrow will be key to gold's short-term price.
Open-interest contracts on the Comex have surged over the past few weeks, as a huge weight of short positions, taken by speculators who believe the price is to fall, have been built up.
Many believe that in the long-term these are unlikely to be reversed. But tomorrow's trade may see small bouts of short-covering, as speculators rush in to take the profits that materialised on Friday.
In the longer term, analysts believe the outlook is overwhelmingly bearish.
'The trend must be to sell now, because gold as a reserve asset is losing its lustre, and if central banks do not want it, then who will?' one analyst said.
The RBA's announcement sparked fury among the Australian mining industry, the world's third largest, which will now find it increasingly difficult to borrow sufficient amounts of gold from central banks in order to conduct forward sales.
Yesterday, the Geneva-based World Gold Council which represents the world's gold producers, criticised the RBA's sale on behalf of its Australian members.
Australian gold miners are concerned, not only because they will find it difficult to hedge against the price collapse, but because at these levels gold will become increasingly unprofitable to mine.