Market falls out of love with gold as price tumbles again

WHAT NOW for the price of gold, analysts were asking yesterday, as the the precious metal lost more of its value on the markets.

Gold fell another $2 an ounce yesterday in London after plummeting $9 on Friday as the markets continued to absorb Friday's decision by the UK Treasury to sell 400 tonnes, more than half its 715 tonnes of reserves.

Dealers ignored an attempt by Hans Tietmeyer, President of Germany's Bundesbank, to steady nerves in the market and marked the metal sharply lower. The gold price fell by 1.5 per cent to $278 an ounce.

Mr Tietmeyer, speaking yesterday after chairing a meeting of Group of Ten central bankers, said: "There was no new decision indicated by the others to sell gold. We are all of the opinion that gold will remain in future an important reserve asset for central banks."

Andy Smith, global precious metals analyst at Mitsui in London, said the very speed of the reaction of the gold price showed that gold was treated as another currency rather than a special commodity.

He said there was no support for gold from institutions or "nameplate" buyers that could outweigh the significance of the Treasury's announcement.

"It has had a hugely symbolic impact on the market and it does not matter if it is 40 or 400 tonnes, because it is the Old Lady of Threadneedle Street showing her skirts," he said.

"Since market expectations were raised that no European central bank would show even so much as an anklet of gold for a while, the impact is breathtaking."

Dealers held out little prospect for a rebound in the price in the near future. "If gold goes anywhere, it will probably be down," one predicted.

Another London-based analyst said that although the timing of the Treasury's move was open to question, the decision should not have come as a surprise. "The British making this announcement was a sudden reality check. It will undoubtedly trigger more selling by other central banks, which will affect the outlook of the gold price."

Gold bullion had risen from its recent low of $279 to $289 in the past month, driving up the FT index of gold stocks.

The analyst said: "They had become disconnected from reality. They had overrun themselves, and we will see further losses in equity prices as reality dawns that central banks will now be selling." He added that the Treasury's decision had confirmed the view that gold was not likely to rise above $300 and had disposed of optimistic predictions of a target price of pounds 320.

In South Africa, a major producer, the gold stocks index extended its losses, falling by more than 6 per cent as investors dumped gold issues. The Johannesburg gold index hit its lowest level in a month as it tracked bullion's tumble through the psychological $280 level.

Even the typically upbeat World Gold Council, the industry body, could muster little good news for investors. It applauded the Treasury for giving a detailed explanation of its intentions. But it said the move would be interpreted by the international bullion market as further evidence of official disenchantment with gold as a reserve asset.

The way the Treasury is off-loading its gold will further delay any hope of a recovery in the gold price. While 125 tonnes will be sold in five auctions between now and March 2000, the rest will then be sold over the next three to five years.

"If this is now the end of denial, more aggressive producer selling, at lower prices, can be expected," said Mr Smith of Mitsui. "If so, the lag between the start of UK sales and the price rising sharply - a decade last time - may widen."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Supporting role: at the Supreme Court, Rhodes was accompanied by a famous friend, the actor Benedict Cumberbatch
booksPianist James Rhodes on the extraordinary legal battle to stop the injunction of his memoirs
Arts and Entertainment
Jesuthasan Antonythasan as Dheepan
filmDheepan, film review
Sport
Steven Gerrard scores for Liverpool
sport
News
Tattoo enthusiast Cammy Stewart poses for a portrait during the Great British Tattoo Show
In picturesThe Great British Tattoo Show
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?