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."Reuse content