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Global prices steady as Britain completes second auction of gold reserves

Our Business Bureau in Bombay

Contrary to precious metals traders' fears, gold prices in India did not fall today in the wake of the Bank of England's second auction of 25 tonnes of gold from its 715-tonne reserves.

The auction was done at $ 255.75 per an ounce in London, to enhance England's foreign exchange. The auction attracted noticeable response from the buyers and auction was oversubscribed about eight times.

The gold prices finished on a steady note after moving in a narrow range during the day marked by low volumes, dealers said.

Major players stayed away in the initial hours keeping an eye on the scheduled BoE's auction.

The 24-carat gold finished at Rs 4,050 per ten grams, same as yesterday's close. On September 17, the last day of the last week's trading, the price was Rs 4,080. The 22-carat gold was steady at Rs 3,745.

In fact, it was silver 0.999 variety that fell by Rs 15 and ended at Rs 7,970 per kg.

The dealers felt that much harm had already been caused yesterday, when gold prices fell by Rs 30. Therefore, the precious yellow metal did not loose its charm today and the prices remained stable.

The gold biscuit (116.65 gms) closed at Rs 47,500 per piece which too was steady. Yesterday, it lost Rs 100 compared to Friday.

Earlier in July, BoE had sold 25 tonnes of gold and at that time global gold prices had fallen to 251/252 per an ounce, the lowest in 20 years. Dealers said that compared to July, prices this month are stable.

Dinesh Parikh, an analyst of the metals market, said: "In the domestic market, gold prices were steady on Tuesday. Panic has subsided. Prices are likely to move up in the coming days on the back of festival buying that will last upto Diwali."

"Overseas supply of gold to India is low at present due to tight election-time security. This has curtailed contraband supplies. So, the prices have partly remained unaffected," said another analyst.

Click here for a report on the Great Indian Gold Rush.

Meanwhile, in London, spot gold prices rose 0.75 cents an ounce on Tuesday, following the auction.

Bullion was quoted at $ 256.25/ 256.75 an ounce, up from $ 255.50/ 256.00. The Bank of England said it sold 804,000 ounces of gold from official reserves at $ 255.75, which was slightly above dealers' expectations.

In Hong Kong, spot gold was quoted a shade up at midday on Tuesday from the opening, while spot silver remained unchanged.

Bullion was quoted at HK$ 254.60/255.10 an ounce at midday, a shade up from its opening price of HK$ 254.50/255.00.

Spot silver quoted at $ 5.09/12 per ounce, unchanged from the opening.

Tael gold at midday was at at HK$ 2,356 per tael, down HK$ 1 from its opening at HK$ 2,357 per tael.

In the evening, Asian spot gold ended higher after a weaker dollar stimulated buying, but most investors held fire ahead of Britain's gold auction.

Gold bullion ended at $ 255.00/50 per ounce on Tuesday compared to New York's previous close at $ 254.75/255.25 on Monday.

''The market was very quiet most of the day until the dollar/yen crashed. It moved gold up 50 cents, but that's nothing to get excited about,'' a trader said.

The sudden weakness in the dollar sparked general buying of gold, which was unrelated to the Bank of England auction. Results from the gold sale were expected around 11.15 GMT.

In Tokyo, Japan, the dollar/yen rate was quoted at 105.08 yen late in the Asian day after falling in reaction to the Bank of Japan's announcement that it was keeping monetary policy unchanged. The dollar was quoted at 106.27 yen in New York on Monday.

Traders said it was difficult to predict the auction's outcome and most players preferred to wait and see. ''If you take a position now, it is like flipping a coin,'' one trader said.

The sale of 25 tonnes of gold was the second in a controversial programme of five auctions planned by Britain to dispose of 125 tonnes of gold initially. Ultimately, a total of 415 tonnes, or more than half of total gold reserves, will be sold and substituted with dollars, euros and yen.

The first auction on July 6 was followed by a series of 20-year lows in the gold price, reaching a floor of $ 251.70 on August 25.

While the sale might be followed by a brief short-covering rally, the longer term outlook was for the price to fall further, a trader said.

Spot silver ended at $ 5.09/12 an ounce, unchanged from the closing price in New York on Monday.

Local tael gold in Hong Kong ended HK$ 1 up at HK$ 2,361.

The carry over charge at the Chinese Gold and Silver Exchange Society was HK$ 1, down from its previous fix at HK$2.

In morning trades in London on Tuesday, the gold market braced nervously as the BoE prepared to auction the second chunk from its reserves. July's debut sale drove prices to 20-year-lows and unleashed producer protests.

This time round, traders see a growing likelihood that the market could stage a rally after the auction, the latest in a series of five 25-tonne gold sales through to next March aimed at boosting the bank's holdings of dollars, euros and yen.

London gold fixed at $ 255.20 a troy ounce on Tuesday morning, 20 cents down on Monday's afternoon fix and continuing a sideways trend in place for most of the month.

''The odds that gold will rally post-auction are shortening, with most market participants willing to bet gold will head higher this afternoon,'' one London dealer said.

''Initial resistance will be seen at $ 256.50 and then again at $ 258,'' she added.

Spot gold was last at $ 255.15/ 255.65, 40 cents up on New York's Monday close.

Gold has yet to recover from the slide seen after Britain's first sale on July 6, when prices dropped from 261.20 to a series of 20-year-lows that reached a floor of 251.70 on August 25.

Dealers trying to evaluate the auction's success will scrutinise Tuesday's result, due around 11:15 GMT for price, the volume of bids and how much gold the winning bidders are allocated.

Bullion dealers predicted a sale price just below current levels but were wary over where gold would go next.

''Here is not too much going on at present; it looks like everyone is pretty flat waiting to see what happens,'' said a dealer in Germany. ''The outcome is a bit difficult to predict.''

Britain suffered severe criticism from producers, producing countries and opposition politicians when it unveiled the auction proposal in May, a move which knocked prices down more than 10 per cent. It plans to cut altogether 415 tonnes from the UK holdings.

Critics said the sale threatened miners' jobs in high-cost operations in South Africa and elsewhere and left Britain's reserves exposed to market fluctuations in the currencies it held instead of gold.

The World Gold Council, a producer organisation, has run a campaign urging the British government to ''hold on to our gold'' and blaming the policy for gold's price dive this year.

''If you don't want this most precious of metals replaced by foreign banknotes, join the thousands who have already made their voice heard,'' the council says on its Website.

Mud-slinging about Britain's sales plans has clouded the bigger picture, which has shown a steady decline in gold prices since their 1980 peak at $ 850.

Increased mine supply, forward selling by miners and speculators and the real and imagined threat of central bank reserve sales have all tarnished gold's allure.

After July's UK sale, the International Monetary Fund scrapped controversial plans to sell some of its gold reserves to pay for a programme of debt relief for poor countries.

Instead, it is opting for an off-market operation based on revalued reserves, taking advantage of the gap between the price at which the IMF values the metal and its market prices.

Additional inputs: UNI/Reuters

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