Second gold sale by Bank prompts price rally

SPOT GOLD prices pushed higher yesterday after the Bank of England reported stronger-than-expected demand at its second controversial bullion auction. The central bank said that its offer of about 25 tonnes of gold, which sold at $255.75 an ounce, was eight-times subscribed.

Gold Fields, the South African miner, and AngloGold, the world's leading producer, both said that they had submitted bids for some of the metal. Gold Fields, which picked up 12.5 per cent of yesterday's sale, described the offer as cheap.

Spot gold, which was fixed in London morning trade at $255.30 an ounce, rallied after the sale results were disclosed amid a flurry of short-covering. It touched a one-month high of $261, before easing in US trade to $259.50. One analyst said: "The fact that it was eight-times subscribed was seen as a positive, and that helped to kick prices a little bit higher."

Shares in gold producers, and the South African rand-US dollar rate, firmed after the result.

Analysts were surprised at the apparently robust showing at the sale, but remained cautious about the medium-term prospects for the commodity.

The Bank of England's decision not to disclose the range of prices at which the bids were received reduced the amount that could be read into the over-subscription, they said.

Gold prices have yet to fully recover the steep losses that followed the Bank of England's first sale on 6 July, when they slipped from a sale price of $261.20 to a series of 20-year lows.

The UK central bank is selling off 415 tonnes of its 715-tonne reserves to rebalance its portfolio in favour of greater currency holdings.

The programme of sales, which will see 125 tonnes sold this fiscal year in a series of five sales, has attracted sharp criticism from the Conservative Party and leading producers.

Francis Maude, the shadow Chancellor, yesterday said: "We oppose this bungled operation, which will cost Britain hundreds of millions of pounds as a result of the slump in the world gold price."

Yesterday's sale netted the Bank of England $206m.