Analysts: Gold may stay in rut

Press, 27 July 1988, Page 33

Analysts: Gold may stay in rut

PA Tokyo Gold prices are likely to stay down after their dramatic plunge of around SUSIS ($NZ23.40) on Monday, Tokyo precious metals dealers said.

Even heavy buying from Japan, which is emerging as the world’s leading buyer of bullion, is unlikely to stop the long-term rot in the gold price, they said. Oversupply in the gold market, and a perception by gold traders that soaring inflation because of rising world commodity prices is now unlikely, are overshadowing the market.

Gold recovered slightly to just over $431 an ounce in Tokyo on Tuesday, still well below a key support price. Panic selling in New York after gold slid below $435 pushed the metal substantially lower. Gold’s gloomy outlook should keep silver and platinum subdued too.

“All three precious metals will remain bearish in the short term as we hardly expect any new strong factors to emerge,” said Itsuo Toshima, regional manager of the Far East branch office of World Gold Council, Ltd.

The prospect of higher food prices because of the U.S. drought, coupled with a brief surge in oil prices last week, raised the possibility of higher inflation in industrialised economies. But rains in America and the belief oil producing countries will remain split on production quotas changed some dealers’ minds.

“Gold, usually considered as the basic inflation hedge, will be under pressure after large setbacks in soybean and oil prices,” an analyst at a brokerage firm said.

Mining unions in South Africa, the biggest supplier in the non-commun-ist world, have been quiet after a period of unrest. Fears of cuts in South African production have thus abated. A new kind of finance for gold mining firms is also exacerbating supply, dealers said.

Gold mining firms borrow gold from finance houses, sell it, then use the cash to mine more gold to repay the loans. Mining firms, therefore, no longer have as much control over gold supply and demand as they did, dealers said.