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Welcome to The Week in Gold! (1999 Archive) Through the courtesy of the World Gold Council we are pleased to offer the Weekly Gold Market Commentary assembled from their worldwide staff's observations of the significant events that shaped each week's gold market. (View Commentary for Current Year)


1999 WEEKLY GOLD MARKET COMMENTARY

(December 20, 1999 - January 3, 2000)

The gold market was quiet during the final two weeks of 1999. The price opened the week beginning December 20 at around $283, and that proved to be the low for the period. Prices firmed as the year-end approached, helped by some enthusiastic buying of out of the money calls at strike prices of $295 and $300 for dates early in the New Year. The high for the two weeks was $290.90 at the second London fix on December 29, and the price then eased back on light profit taking. Gold ended the year at $287.80/8.80 at the New York close on Thursday December 30, virtually unchanged from the level at the start of 1999. Major gold markets around the world remained closed on Friday December 31 and Monday January 3.

The commitment of traders reports from the Commodity Futures Trading Commission for the weeks ending December 21 and 28 were postponed because of the holiday season. The previous report showed the large speculators switching to a net short position of 20,553 contracts (equivalent to 63.9 tonnes) on Comex in the week ending December 14. This compared with a net long position of 6,129 contracts (19.1 tonnes) two weeks before. The one-month gold lease rate declined during the last two weeks of the year, falling from 1.45% to 0.58%; the 12-month rate remained steady at 1.92%.

The Dutch central bank released details of two further sales of gold. The bank reported a decline in gold reserves of 13.5 tonnes on Tuesday December 21, and an additional 10 tonnes on Tuesday December 28. These second and third sales brought the total sold so far to 27 tonnes out of the 100 tonnes the Dutch plan to sell by September 2000. A further 200 tonnes will be sold over the following four years. The sales are in line with September's Washington Agreement on gold.

The International Monetary Fund announced the completion on Friday December 17 of the second in a series of revaluations of a portion of its gold reserves. As part of a previously announced plan for financing debt relief for the world's poorest nations, the IMF sold a little over 655,000 ounces (20.4 tonnes) of gold to Mexico at market prices, and immediately accepted the gold back in settlement of a debt repayment due the same day. The IMF retained about SDR 23 million for its own account, and invested the SDR 111 million balance with the Bank for International Settlements to generate income for the Heavily-Indebted Poor Countries initiative.

A Russian government commission decided on Monday December 27 to maintain the export tariff on gold at 5%. The commission had been examining proposals ranging from abolishing the tariff, or extending it for a further six months. Gold producers and commercial banks had supported ending the tariff on the grounds that it hurts exports, but the Finance Ministry preferred to maintain it.

In other news, November 1999 gold imports into Japan were 4.14 tonnes, down from 8.12 tonnes in November 1998 but above the 2.19 tonnes imported in October 1999. Imports for the first eleven months of 1999 totaled 94.5 tonnes, up 27% from the 74.7 tonnes at the same stage of 1998. China Daily newspaper reported that China is to issue the world's biggest gold coin this month to mark the millennium. Only 20 of the coins, weighing 10 kilograms, will be issued. The Mongolian central bank bought a record 10.9 tonnes of gold during 1999, up 33.9% from the total for 1998. Physical demand should be strong at the beginning of the New Year, with the Eid-al-Fitr holiday marking the end of the Muslim festival of Ramadan this week, and Chinese New Year in the first week of February.


(December 13 - December 17, 1999)

Last week was a very quiet week for gold in terms of market volume, but prices remained fairly volatile as some late year-end positioning continued. Gold initially held within its $278-282 trading range, supported by physical demand below $280 and a slight tightening in liquidity. Quotations perked up on Wednesday, firming towards $283 during after the New York opening. Selling in the Asian session reversed the uptrend on Thursday morning, however, and the market drifted quietly back to test underlying support at $280. Renewed buying from one or two large traders was enough to lift the thin market again on Friday, and after a PM fixing of $284.15 gold ended the week in New York at $283.30/284.30.

The latest commitment of traders statistics released by the Commodity Futures Trading Commission showed the large speculators switching to a net short position on Comex. On December 14 the net short position was 20,553 contracts (equivalent to 63.9 tonnes), compared with a net long position of 6,129 contracts (19.1 tonnes) two weeks before. Open interest on Comex increased slightly to 159,653 contracts. The one-month gold lease rate eased a little over the week, down from 1.52% to 1.45%; the 12-month rate strengthened, however, moving up from 1.77% to 1.92%.

Data released on Tuesday revealed that Dutch central bank gold reserves fell by 31 million euros as of December 10, indicating the first disposal into the market from the 100 tonnes the bank intends to sell in the year-ending September 2000. The Dutch data did not detail how much gold was sold, but the European Central Bank said that the equivalent fall in the gold reserves of the European system of central banks was due to the sale of 3.5 tonnes by one central bank.

As part of a previously announced plan for financing debt relief for the world's poorest nations, the International Monetary Fund completed the first revaluation of a portion of its gold reserves on Tuesday through an off-market deal with Brazil. Just over 7 million ounces (218 tonnes) of gold were sold at market prices to Brazil and immediately accepted back as payment for a debt due the same day. The gold did not enter the market and the total quantity of gold held by the IMF remained unchanged, although some of the gold is now held at a higher valuation. The IMF retained about SDR 250 million from the deal for its own account, and the SDR 1.2 billion balance was invested with the Bank for International Settlements to generate income for the Heavily-Indebted Poor Countries initiative. The IMF announced that a further revaluation involving an off-market sale and repayment of some 665,000 ounces of gold would take place on Friday December 17.

A Russian government commission is to examine proposed amendments to the current 5% export tariff on gold, which was imposed for six months in April and then extended indefinitely in October. Proposals under consideration range from abolishing the tariff, or extending it for a further six months until next summer. Gold producers and commercial banks support scrapping the tariff as it hurts exports, but the Finance Ministry wishes to maintain it. Also in Russia, the Tax Ministry has proposed that producers of some commodities, including precious metals, be required to sell at least 30% of output through domestic commodities exchanges.

This is the last weekly Gold Market Commentary for 1999; we wish all our readers an enjoyable holiday season. The next commentary will be published in the week beginning January 3, 2000.


(December 6 - December 10, 1999)

As the week opened, the Dutch central bank announced plans to sell 300 tonnes of gold over the next five years. The recent Washington Agreement on gold stated that the 15 European central bank signatories would limit their sales to 2,000 tonnes over the next five years. Switzerland has announced plans to sell 1,300 tonnes; the UK, which had already sold 50 tonnes at the time of the agreement, intends to sell a further 365 tonnes; the Dutch news brings the total amount of sales planned to 1,965 tonnes, almost the entire declared quota. Logically, therefore, this should not have been a disruptive market factor, but prices nevertheless dropped on Monday in a knee-jerk reaction. After breaking below $280, gold continued down to a low of $275 on Monday. The implications of the Dutch announcement were quickly absorbed, however, and on Tuesday the market rallied above $282.

Overhead resistance was apparent at the $285 level on Wednesday morning and quotations slipped back to $283.30 at the AM fix as gold began to struggle. Reports that Russian central bank reserves had fallen by 80 tonnes during November then sparked a burst of selling, and gold dropped back towards $280 that afternoon. These reports were apparently based upon Russian central bank statistics, but the Russians themselves declined to comment. Over the past two or three years, reported gold reserves in Russia have swung quite widely, reflecting both the opening and closing out of swap positions as well as the acquisition of local gold production. It is possible that the change in holdings could once again reflect swap transactions, but the position remains unclear in the absence of an official statement.

In thin year-end trading conditions, gold then dipped below $280, easing gradually down to a fix of $278.45 on Friday morning. Book-squaring appeared on the New York opening as the market continued to wind down, however, and prices recovered to $280.65 at the afternoon fix before closing the week quietly in New York at $278.80/279.30.

No commitment of traders statistics were released by the Commodity Futures Trading Commission this week. The last figures released, for the two weeks ended November 30, showed the large speculators maintaining a modest long position on Comex at 6,129 contracts (equivalent to 19.1 tonnes), up slightly from the previous 2,771 contracts (8.6 tonnes). The end-year decline in trading activity has seen open interest on Comex continue to slide, down to 153, 744 contracts by December 10. Gold lease rates fell back over the week but still remained historically high, the one-month rate quoted at 1.52% and the 12-month rate at 1.77%.

The London Bullion Market Association released statistics showing a sharp fall in clearing levels for gold in November. The ounces transferred were down by a third from October to a daily average of 25.3 million ounces (787 tonnes), close to the record low set in April this year.
On Wednesday the upper house of the Swiss parliament voted in favour of legislation allowing gold sales to begin next spring. Once the law has been officially published, it faces a three-month period in which opponents could try to force a referendum on the measure.


(November 29 - December 3, 1999)

The market started the week quietly ahead of the third UK gold auction, fixing at $293.10 Monday morning. In the hour before the auction prices started to suddenly run up, reaching the $295 level by the auction deadline in anticipation of a good result. The allotment price came in lower at $293.50, however, while the bid coverage of only 2.1 times compared with 8.0 times at the September auction was also seen as disappointing. Gold responded by moving sharply lower and maintained a downtrend over the rest of the week, reaching $292 on the next day and breaking below $290 on Wednesday. Long liquidation then gathered pace accelerating the decline in prices, so that on Friday quotations dipped below $279. A slightly steadier tone then emerged, so that gold closed the week in New York at $279.60/280.60.

The latest commitment of traders statistics released by the Commodity Futures Trading Commission shows the large speculators maintaining a modest long position on Comex, up slightly from 2,771 contracts (equivalent to 8.6 tonnes) to 6,129 contracts ( 19.1 tonnes) for the two weeks ended November 30. The fall-off in activity as the year-end approaches has seen open interest continue to fall back, reaching a 12-month low of 156,901 contracts by December 3. Gold lease rates, although slightly down on the previous week, retained a strong tone, the one-month rate standing at 1.71% and the 12-month rate at 1.79%.

Canada's Finance Department announced that the central bank sold no gold in November, leaving gold holdings unchanged at 1.8 million ounces (56 tonnes). In Russia the State Duma approved a bill removing the 20% value added tax on transactions in gold silver and platinum coins. Plans to start minting gold coins as an investment alternative to the dollar were announced in October last year, but have been on hold until the obstacle of value added tax is removed. The bill must now be approved by the Federation Council and signed by the president to become law.

Late News: on Monday December 6 the Dutch central bank announced plans to sell 300 tonnes of gold over the next five years. Although this news caused a knee-jerk downward reaction in prices it should be noted that this decision is within the terms of September's Washington Agreement on gold, and should not be seen as a disruptive market factor. The Washington Agreement stated that the 15 European central bank signatories would limit their sales to 2,000 tonnes over the next five years. Switzerland has announced plans to sell 1,300 tonnes; the UK, having already sold 50 tonnes, intends to sell a further 365 tonnes; with the announcement by the Netherlands the total declared sales amount to 1,965 tonnes, almost the entire quota. The Netherlands has rejected sale by auction, preferring to sell the gold quietly into the market as opportunity presents through the BIS.


(November 22 - November 26, 1999)

Market activity remained relatively thin over the week, with participants wary of assuming new positions ahead of the over the counter options expiry, the US Thanksgiving holiday and the third UK Government gold auction. Gold was fixed little changed at $294.40 on Monday morning but began to edge gradually higher on light buying interest, moving above $297 on Tuesday. With gold between the two main strike prices of $295 and $300, the OTC options expired uneventfully on Wednesday. Last-minute position adjusting in New York ahead of the holiday lifted quotations to $299 later in the day, but with trading activity subsequently falling away prices eased slightly lower over the rest of the week, ending in London on Friday at $296.75/297.50.

There were no commitment of traders statistics published by the Commodity Futures Trading Commission this week. The last figures released, for the two weeks ended November 16, showed the large speculators holding a net long position for the first time in more than a year. Although modest, the net long position of 2,771 contracts (equivalent to 8.6 tonnes) was in sharp contrast to the net short position of 19,119 contracts (59.5 tonnes) seen only one week before. Open interest fell further after this announcement, indicating the closing out of additional positions. The one-month gold lease rate jumped sharply towards the end of the week from 0.56% to 1.92%, possibly reflecting selling into the price strength generated by the optimism in the market.

The Central Bank of Jordan announced on Thursday that it had sold half its gold reserve, or about 13 tonnes, during October. Elsewhere, the Czech and Slovak Prime ministers signed an agreement settling the division of property between the two countries following their split more than six years ago. Among the conditions was a promise by the Czech central bank to return a disputed 4.5 tonnes of gold to Slovakia.

The State Bank of India, India's largest commercial bank, announced that it had collected over 400 kg of gold during the week following the launch of its gold deposit scheme. Other banks are expected to launch gold deposit schemes over the next few months. Under the plan, announced in last February's budget, investors deposit gold and receive interest-bearing certificates or bonds in exchange. On maturity, the depositors can take back their gold or the equivalent in rupees. In the East Asian gold trade, the premium for kilobars in Singapore was steady at 30 to 40 cents over London prices; in Hong Kong local kilobar brands were trading at a 50 cent discount, while well-recognised imported brands were quoted at a premium of 80 cents.

Late News: At the third UK government gold auction held on November 29, the 25 tonnes on offer was sold at $293.50, 40 cents above the morning's fixing price. Bids for 2.1 times that amount were received and the scaling factor for bids at the allotment price was a low 47.9496%. In the hour between the fixing and the auction deadline, prices ran up to $295 in anticipation of a good result. In the event, disappointment resulted from both the allotment price settling below the last market price and from the coverage of only 2.1 times on the bids; prices reacted quickly to the downside, briefly touching $289 before recovering to $293.


(November 15 - November 19, 1999)

The gold price opened last week a little firmer, fixing in London on Monday morning at $292.70 compared with the previous Friday's New York close of $290.80/1.80. Gold then held steady above $290 for the rest of the week, amid signs of a reluctance to establish new positions ahead of the Thanksgiving holiday in the US and the third UK auction due on November 29. The price showed no apparent response to the increases in short term interest rates in the US, with the Federal Reserve raising the Fed Funds rate 25 basis points to 5.5% and the discount rate a similar amount to 5.0% on Tuesday. Gold edged above $295 at the afternoon fix on Wednesday after the release of the WGC's Gold Demand Trends survey, which reported a rise of 22% in the third quarter, and then closed the week in New York at $294.50/5.50.

The latest commitment of traders report published by the Commodity Futures Trading Commission showed the large speculators on the Comex holding a net long position for the first time in a year, although the position was very small. For the two weeks ended November 16, large speculators were net long 2,771 contracts (equivalent to 8.6 tonnes) on the Comex, compared with a net short position of 15,283 contracts (47.5 tonnes) for the two weeks to November 2. The report also showed that on November 9, the net short position had widened to 19,119 contracts or 59.5 tonnes. Gold borrowing rates continued to soften over the week, indicating no shortage of liquidity. The one-month rate eased back from 0.62% to 0.56%, while 12-month gold slipped from 2.05% to 1.58%.

Gold production in Russia in the first 10 months of the year rose 8% to 105 tonnes, according to figures released by the state precious metals and gems reserve Gokhran. Commercial banks that have been buying gold from the mines this year have mostly sold it on to the central bank, because a 5% tariff on precious metal exports made exports unprofitable. There were reports this Monday that the trade ministry plans to increase the tariff to 6.5%.

In China, officially reported gold production for the January to October period was unchanged from a year ago at 139 tonnes. Wang Dexue, head of the state gold bureau, told gold producers they must meet challenges and move toward the direction of adapting to the market-oriented economy. Earlier this month, the WGC urged China to deregulate its tightly-controlled gold market gradually, first freeing up the domestic market and then opening up internationally. The People's Bank is currently the sole intermediary between gold producers and buyers. Wang said the bureau was studying a plan to establish a national gold market, and added that this would be a big push for the development of China's gold industry. Last week, the People's Bank liberalised the domestic silver market, allowing producers to sell directly to buyers.


(November 8 - November 12, 1999)

Having dipped to a low of $286 in Asia, gold quietly recovered after the European opening on Monday, firming to $289.00 at the morning fixing and consolidating close to this level throughout the rest of the day. Fund-led short-covering then arose in Asia on Tuesday, pushing quotations up to an AM fix of $291.25 in London. Good physical demand was in evidence, and despite the downward course of gold lease rates, quotations held comfortably above the $290 level. On Wednesday, rumours that the Bank of England was to scale back plans to auction 25 tonnes of gold on November 29 swept the market, triggering a sudden sharp rally in gold, which briefly spiked up to above $298. The market initially held on to most of its gains in spite of the Bank of England's swift denial of any changes to its gold sales. The approach of the Comex options expiry undoubtedly played a role in this as a large number of call options were struck at the $300 level, while there was also talk of producer buybacks. Gold was fixed at $296.25 on Thursday morning and held above $295 until selling emerged late in the day in New York. By Friday morning quotations were back at their previous levels, trading quietly between $290 and $293. The options expiry was uneventful and gold ended the week in New York at $290.80/291.80.

No commitment of trader's report for futures trading was released this week. The last figures published, for the two weeks ended November 2, showed the net short position of the large speculators on Comex declining slightly from 17,296 contracts (equivalent to 53.8 tonnes) to 15,283 contracts (47.5 tonnes). Open interest since then has fallen from 208,907 contracts to 195,766 contracts.

Market liquidity remained in plentiful supply over the week with the one-month rate easing back from 0.77% to 0.62%. The longer-dated maturities also moved lower; the approach of the year-end kept the two-month rate relatively buoyant at 2.04% however, while the 12-month rate slipped to 2.05%.

In Taiwan imports of gold bars and coins were 13.2% higher in October than for the same month last year. Imports for the first 10 months of the year totalled 71.2 tonnes, 39% up on the same period of 1998.

The London Bullion Market Association announced that its net average daily clearing turnover rose slightly in October to 37.2 million ounces (1,157 tonnes), up only marginally from 37.1 million ounces (1,154 tonnes) the previous month, but nevertheless the highest level seen since February 1998. The much higher average gold price over the month, $310.73, lifted the average daily value of gold cleared to $11.5 billion, 17% above the previous month.

China announced that it is to liberalise its domestic silver market, abolishing the policy of state monopoly for purchasing and marketing of silver and allowing producers to sell directly on the local market. The licensing system for silver processors, wholesalers and retailers will also be phased out. This move raises the likelihood of similar deregulation occurring in the domestic gold market at a future date.


(November 1 - November 5, 1999)

The week opened with fund selling in the Asian time zone pushing gold prices sharply lower. The news that Ghana's Ashanti Goldfields had won a three-year reprieve from its hedging counterparties against margin calls undermined prices still further in London, and gold was fixed more than $5 down at $293.85 Monday morning. A further wave of selling emerged after the US opening causing gold to slip back to $291.35 at the PM fixing. The attendance of many traders at the annual Comex week activities in New York meant that the market remained fairly quiet, however, and quotations started to consolidate above the $290 level.

Quotations remained within a tight range throughout the rest of the week with no fresh news to stimulate activity. Gold firmed slightly to $292 on Thursday and held close to that level until Friday afternoon when the release of US labour figures indicated that although jobs continued to be created, wage pressures were less inflationary than feared. Prices consequently eased back and ended the week in New York at $289.50/291.50.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows the net short position of the large speculators on Comex declining modestly, from 17,296 contracts (equivalent to 53.8 tonnes) to 15,283 contracts (47.5 tonnes) in the two weeks ended November 2. Open interest over this period also fell from 223,090 contracts to 208,907 contracts as speculators closed out both short and long positions. Gold lease rates for nearby maturity continued to decline - the one-month rate now standing at 0.77% - reflecting reduced borrowing demand from speculators as well as an influx of fresh liquidity. The two-month rate remained higher at 2.38% as year-end tightness remained a feature, while the 12-month rate also stood at 2.38%.

Statistics released by the Comex division of the New York Mercantile Exchange illustrate the extremely high levels of activity enjoyed by the gold market during October. A record 619,506 options contracts were traded in October, almost double the previous monthly record of 334, 506 options set in September 1999. The first ten months of the year have seen 2,411,660 options contracts traded, already surpassing the previous full-year record of 2,080,067 options contracts achieved in 1997.

The CPM group published its 1999 Gold Survey during the week. The conclusion was that the gold price surge off 20-year lows in August marks a cyclical turn in the market, with prices ultimately being expected to stabilise around the $315-320 level before heading higher. The report said that "lower and volatile equity values, a declining dollar, rising oil prices, signs of inflation and Y2K concerns have been reflected in investment demand for gold".

The Canadian Finance Ministry announced that no sales from official gold reserves were made in October, leaving reserves at 1.8 million ounces.


(October 25 - October 29, 1999)

It was another volatile week for gold price movements, although at the end prices were little changed on the week. Monday opened quietly with gold drifting above the $300 level for most of the day. Market opinion had moved towards the view that most producer-related covering after the recent sharp rally had been completed, removing one of the pillars holding prices up. With the over the counter (OTC) options expiry looming, options-related and stop-loss selling early on Tuesday pushed quotations below $300 and towards the $295 support level. The market subsequently bounced to $297.95 at the morning fix, but the liquid lending market held the recovery in check, and renewed selling during the Comex session saw gold fall below $290.

A steadier tone developed on Wednesday and gold consolidated just above $290. The OTC options expired relatively quietly and prices edged a little higher during the New York session. Strong buying then arose in the Far East as the buying of short-dated call options at $300 sparked short-covering and gold rallied sharply, reaching $300.90 at the morning fix on Thursday. A softer tone developed later in the day causing prices to slip back to a PM fixing of $296.25. The market regained some ground later in the US, however, and gold moved up to a fixing of $299.10 Friday afternoon before closing the week in New York at $298.30/300.30.

No commitment of traders reports were published by the Commodity Futures Trading Commission this week. The last figures published, for the two weeks ended October 19, showed a relatively modest decline in the net short position of the large speculators on Comex, down from 21,857 contracts (equivalent to 68 tonnes) on October 5 to 17,296 contracts (54 tonnes) on October 19. Open interest, at 214,000 contracts, remains high. Short term gold lease rates continued to fall with liquidity now plentiful out to one-month, where the lease rate now stands at 0.87%. The two-month rate is currently firm at 2.77%, however, reflecting the tightness developing over the year-end, while the 12-month rate eased back from 3.14% to 2.74%.

On Thursday Russian Prime Minister Putin signed a resolution extending indefinitely a 5% export tariff on metals, including gold. This tariff had been due to expire and traders had anticipated a "window" during which metals could be exported tax-free.

At the start of this week, gold fell again following fund selling in Asia; the news that the troubled Ashanti Goldfields had won a three year reprieve from its gold hedging counterparties and would not have to pay margin calls during this period put further downward pressure on prices, while reports that Cambior had restructured most of its hedge book were also interpreted negatively. Both developments were seen as reducing the likelihood of hedge buybacks by producers.


(October 18 - October 22, 1999)

Although gold started the week on a stronger note, attracting strong initial buying from Asia and Europe and fixing at $317.65 on Monday morning, quotations came under pressure from fund selling on the US opening and dropped throughout the Comex session, ending at $311. Trading conditions remained nervous, with producer hedge books a main focus of attention, and the market continued to retrace its recent sharp rally Tuesday, falling to a low of $305. Strong buying arose during the protracted afternoon fixing, however, carrying prices up to a fixing of $309.50.

The familiar selling out of New York subsequently pushed prices down after the London close, but gold bounced again on Wednesday morning, fixing at $309.75. Activity fell away at this point and in more subdued trading conditions the market began to drift lower. News of a smaller than expected US trade deficit sparked upturns in both the dollar and US stocks and by Thursday morning gold was testing underlying support at the $305 level. The surprise news that Kuwait planned to deposit its entire 79 tonnes of gold reserves with the Bank of England for placement on deposit in the gold market, thus taking advantage of the perceived likely slowing of liquidity growth following the Washington Agreement between European central banks, then served to put further downward pressure on prices. Gold dropped to $302.85 that afternoon and slipped further to the $300 level, where some support was in evidence. On Friday quotations moved more narrowly, holding above $300, while options' volatility dropped back to 20%, less than half the levels seen only two weeks before and more in line with normal active market conditions. Gold ended the week in New York at $301.90/303.90.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows a fall in the net short position of the large speculators on Comex. This decline is not as large as could be expected, however - down from 21,857 contracts (equivalent to 68 tonnes) on October 5 to 17,296 contracts (54 tonnes) by October 19 - indicating that some long-term shorts may have assumed their positions at considerably higher levels. Over this period gross speculative short positions fell by more than 12,000 contracts, but speculative long positions also declined by about 7,500 contracts following the retracement of the gold price from its recent peak. Open interest since then has eased back by about 3,000 contracts to a still-high 219,926 contracts.

The pressure on gold lease rates continued to ease as short-covering and the unwinding of producer hedges released liquidity into the market. There were also rumours of additional lending of gold by central banks outside of the Washington Agreement, which received a measure of confirmation after Kuwait's announcement. The one-month rate slipped back from 2.32% to 1.41% and the 12-month rate from 3.52% to 3.14%.


(October 11 - October 15, 1999)

The gold market remained nervous over the week with traders watching for signs of further producer hedge book restructuring. The week opened quietly with US banks closed for Columbus Day and gold eased back to a fixing of $317.75 Monday morning. The news of Lonmin's bid for Ashanti Goldfields appeared to reduce the likelihood of further producer buy-backs of gold and quotations dipped briefly to $315, but then bounced as fresh buying interest emerged. The buying continued overnight in the Far East and gold firmed to $323.50 Tuesday morning. Overhead resistance was quick to emerge at the higher levels, however, and in light trading conditions gold fell back to the $318 level.

On Wednesday the market's continued quietness was reflected in narrowing dealing spreads, down to $1 from the $2-3 evident over the last two weeks. Gold firmed in the morning, improving to $320.50 at the fix and consolidating around this level for much of the day. More volatile conditions returned on Thursday, however, with the market moving up to $323 in the morning only to encounter strong selling after the US opening, which pushed prices down towards $312. The liquidation quickly ran its course and quotations regained the $315 level Friday morning. The news that US producer prices rose by 1.1% in September sparked a sharp sell-off on the stock market, which was exacerbated by US federal reserve chairman Alan Greenspan's warning about market giddiness; gold reacted only marginally, improving slightly towards $316 but then easing back to close the week in New York at $314.60/316.60.
There was no commitment of traders report published this week. The last report, for the two weeks ended October 5, showed a continued decline in the net short position of the large speculators on Comex, which fell from 37,842 contracts (equivalent to 118 tonnes) to 21,857 contracts (68 tonnes). Unusually, much of this decline was due to a rise in long positions over the period, rather than the closing out of short positions. Gold lease rates moved lower once more as the squeeze on liquidity continued to ease, the one-month rate moving sharply down from 4.05% to 2.32% and the 12-month rate from 4.50% to 3.52%.

The London Bullion Market Association announced that the average net daily clearing turnover in London rose by 2% in September to 37.1 million ounces (1,154 tonnes), the highest level this year.

South Africa launched its millennium Krugerrand gold coin on Wednesday as part of a global effort to increase demand into the 21st century. The Rand Refinery estimated that demand for the new coins, which are available in one-ounce, half-ounce, quarter-ounce and tenth-ounce sizes, would exceed 4 million ounces in 1999.

The British assay offices announced that they had hallmarked 6,495,547 gold items during the third quarter of 1999, 5.7% up on the same period last year.


(October 4 - October 8, 1999)

Another very volatile week for gold as the market continued to adjust to the implications of the September 26 Washington Agreement on Gold. Dealing spreads, at $2-3, remained wide reflecting both the high degree of nervousness among market makers and the high levels of price volatility, while much spot trade was options related. Gold started the week higher, fixing at $311.75 on Monday morning and edging steadily higher throughout the day. The price rise gained renewed momentum during Asian trading hours as both short-covering from Australia and fund buying arose. The buying continued in Europe on Tuesday and after fixing at $326.25 in the morning, quotations spiked up to a two-year high of $340 before falling back, on profit-taking, to $325.50 that afternoon.

A calmer tone then began to develop, although traders remained very cautious and prices continued to gyrate. Gold ranged above $325 on Wednesday morning, then slipped back after the US opening to an afternoon fixing of $318.25 only to bounce back to the $323 level later in the day. Similar moves were seen on the next day and the view that gold was beginning to consolidate between $315 and $325 gained some acceptance. On Friday support near the $315 level was tested and quotations subsequently ran back up towards $325 once more before closing the week in New York at $319.50/321.50.

The latest commitment of traders report published by the Commodity Futures Trading Commission showed the net short position of the large speculators falling further during the two weeks ended October 5, down from 37,842 contracts (equivalent to 118 tonnes) to 21,857 contracts (68 tonnes). Curiously, little of this fall was due to the closing out of short positions but, instead, due to a sharp increase in long positions over the period. This may indicate that the remaining short positions were assumed at higher prices, and thus remain profitable, or that the conviction that gold is on a downward path retains some adherents. Gold lease rates, although well down on the levels seen during the previous week, still remain historically high - the one-month rate at 4.05% and the 12-month rate at 4.50%.

Canada's Finance Department announced that the central bank sold 136,000 ounces (4.2 tonnes) of gold during September as part of its long-standing sales programme, reducing its gold holdings to 1.8 million ounces (56 tonnes).


(September 27 - October 1, 1999)

A remarkably strong and active week for gold with prices surging to the highest levels seen in almost two years and the market falling into backwardation as lease rates also spiked sharply. Having already rallied to the $270 level during the previous week on the perception of a positive result for the second UK gold auction - completed at $255.75 per ounce - the market was already looking stronger. The catalyst for the next move was the unexpected announcement on Sunday that 15 European central banks (the 11 members of the Eurosystem, the ECB, Switzerland, Sweden and the UK) had reached agreement limiting central bank sales of gold to a maximum of 2,000 tonnes over the next five years, or 400 tonnes per year.

This news was quick to allay prevailing fears of a deluge of central bank gold sales; market sentiment swiftly turned bullish in response and quotations raced up to a fixing of $281.70 on Monday morning. The market then calmed temporarily settling just above $281, but renewed buying, including both short-covering and the closing out of producer hedge positions started prices moving higher again on Tuesday. The AM fixing of $288.25 meant that gold had recovered all of the ground lost since the May announcement of the UK auctions. Options-related buying was also triggered as prices rallied higher and expiry loomed, with grantors of call options forced to scramble for cover, giving the impetus for gold to break above $300 Tuesday afternoon.

By this time a serious shortage of physical metal was emerging. Gold lease rates, which had been strengthening for the previous two months, suddenly rocketed with the one-month rate soaring above 10% on Wednesday, pushing the market into backwardation (spot prices higher than forward prices). Gold itself also maintained its upward momentum, fixing at $317.25, and the bid/offer spread in the market widened to $3 in response to the volatility. After touching a peak of $325 the market faltered as the rally overextended itself. Lease rates eased as producer buy-backs and speculative short-covering began to release liquidity into the market and prices fell back sharply on profit-taking.

On Thursday gold eased below $300. Market activity was less hectic, but the news that Ashanti Goldfields had unwound around 80% of its hedge book, equivalent to 280 tonnes, over the previous few days served to illustrate the scale of business seen. A firmer tone returned on Friday, and although price gyrations were more subdued gold moved up to $307.50 at the PM fix before closing the week in New York at $304.30/306.30.

The statement regarding the European central bank agreement was brief and is worth quoting in full:

In the interest of clarifying their intentions with respect to their gold holdings the above (15) institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.

2. The signatories will not enter the market as sellers, with the exception of already decided sales.

3. The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.

4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.

5. This agreement will be reviewed after five years.

This agreement marks an unprecedented level of co-ordination among governments about gold reserves and changes the entire market background. Aside from removing the long-perceived threat of massive official gold sales that had proved so negative to investor sentiment, it also promises to reduce the supply of additional gold for lending, which is likely to help underpin the recovery in prices. As of Monday morning prices have started to move higher again, and the current volatile market conditions seem likely to remain in place for the immediate future.


(September 20 - September 24, 1999)

Gold prices opened the week unchanged at around $255.00, with some nervousness ahead of the second UK auction from reserves on Tuesday. That sale was received with more enthusiasm than the first offering in July, however, and gold moved steadily higher as the week progressed. After rising 75 cents immediately after the auction results were announced, spot gold closed on Tuesday at $260, carried higher by some short covering in New York. There were further gains during the remainder of the week, and gold moved briefly above $271 on Friday, the highest level for 17 weeks. Friday's New York close was $268.50/$269.00.
The UK sold 804,000 ounces at $255.75, slightly above the prevailing spot price, and the auction was more than eight times oversubscribed, compared with five times for the previous sale. Further evidence of the level of interest the auction aroused was provided by the scaling factor, the amount to which successful bids could be satisfied; this week's figure was 58.5%, compared with around 90% for the first auction. In the aftermath of the previous sale by the UK, gold fell to a 20-year low of $251.70 on August 25.

There was growing international support in the run-up to the IMF/World Bank meetings in Washington for the Fund's plan to finance its contribution to debt relief for the world's poorest countries through a revaluation of part of its gold holdings, rather than a sale. Michel Camdessus, managing director of the IMF, suggested during the week that the Fund might cover a shortfall in the anticipated level of bilateral contributions from member countries by increasing the quantity of gold to be revalued from 10 to perhaps as much as 14 million ounces out of the Fund's total reserves of 103 million ounces.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows a decline in speculative short-selling on Comex during the two weeks ended September 21. The net short position of the large speculators over this period fell from 62,910 contracts (equivalent to 196 tonnes) to 37,842 contracts (118 tonnes).

Gold lease rates eased back a little over the week, with the one-month rate declining from the September 15 peak of 4.85%, the highest since late 1995, to 3.16% by Friday. The yield curve resumed its more normal configuration, with 12-month gold closing the week at 4.24%.

News out on Sunday of an agreement among 15 European central banks to limit aggregate sales by participating countries over the next five years to a maximum of 2,000 tonnes brought further strong gains in the gold price this Monday. The implied annual average of some 400 tonnes of sales is in line with recent experience, and the agreement went some way toward allaying the market's fears of a potential tidal wave of official sector selling. The signatories also undertook not to expand their gold lending operations and derivative transactions beyond current levels for the five-year period. Gold prices rose by over 8% this Monday, the biggest one-day gain since November 29, 1982. The day's high was $285, the highest since the British government announced its sales programme on May 7, and the New York close was $282.50/$283.00.


(September 13 - September 17, 1999)

Gold prices held steady between $255 and a little over $257 throughout the week. Trading was disrupted on Thursday, with Typhoon York keeping the Hong Kong market closed and Hurricane Floyd bringing an early end to trading in New York. Friday's New York close was $255.00/$255.40. Trading activity was at low levels, with many participants reluctant to take out fresh positions ahead of Tuesday's gold auction by the British government. The scheduled sale of 25 tonnes of gold from Britain's reserves is the second of a series of five auctions planned for the current fiscal year to next March, and is part of a longer term plan to reduce the country's gold reserves from 715 tonnes to 300 tonnes. The gold price fell to a fresh 20-year low immediately after the first auction in July; market opinion is divided over whether Tuesday's sale will provoke a further decline.

The International Monetary Fund confirmed that it is close to finalising a plan to revalue a portion of its gold reserves in order to finance the Fund's contribution to debt relief. An IMF official also confirmed the broad outlines of the proposal as reported in the media. In an unrelated development, a senior member of the Japanese ruling party and an unofficial adviser to Prime Minister Keizo Obuchi suggested Japan should use "excess dollars" in its foreign reserves to buy gold from IMF. Mr. Ichizo Ohara stressed that this was only his personal opinion, and added that Japan was not currently discussing the issue with the Fund.

The analyst group Gold Fields Mineral Services said in a survey of developments during the first half of 1999 that the low price was exacting a heavy toll on gold mines, with more than 130 mine closures announced over the past two years. GFMS nevertheless reported that mine production increased during the first half, although the rate of growth was only 1.3%, and is forecast to fall below 1% for the full year.

There was no commitment of traders report from the Commodity Futures Trading Commission. The previous report showed a modest increase in speculative short-selling on Comex during the two weeks ended September 7. The net short position of the large speculators over this period rose from 59,086 contracts (equivalent to 184 tonnes) to 62,910 contracts (196 tonnes).

Gold lease rates moved up early in the week, with the one-month rate climbing from 3.34% on Monday to a high of 4.85% on Wednesday. That was the highest since late 1995. Rates eased back later in the week, with the one-month rate edging down to just a fraction over 4% by Friday. The yield curve remained inverted, with 12-month gold closing the week at 3.25%. Rates are still at historically high levels, reflecting continued pressure on market liquidity. Dealers suggested the pressure was caused by a reluctance on the part of some central banks to roll over existing loans as they fall due, together with increased borrowing to finance forward sales.

Several Indian commentators have recommended that the country should take advantage of the current low price to increase its gold reserves. Mr. S.S. Tarapore, former deputy governor of the Reserve Bank of India, said India's current reserves of 357 tonnes could "safely be doubled", while a dealer pointed out that gold accounts for only 8% of the country's external reserves, compared to the international norm of between 15 and 20%.


(September 6 - September 10, 1999)

With the New York market closed for Labour Day, trading activity in gold was very subdued on Monday. Gold traded narrowly between $254 and $255. Media reports based on leaked information regarding an alternative to open-market gold sales as the mechanism for financing the IMF's contribution to debt relief (see below) caused a flurry of activity and lifted prices above $256 on Tuesday. The market remained cautious, however, and the rally stalled at this level as traders reviewed the IMF news and looked ahead to the UK Treasury auction on September 21. Quotations edged up to $256.40 on Wednesday and touched $257 on Thursday on both dollar weakness and the endorsement of the IMF plan by two influential US legislators. Market conditions thinned on Friday, however, and gold drifted back to $256 before ending the week at $256.30/80.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows a modest increase in speculative short-selling on Comex during the two weeks ended September 7. The net short position of the large speculators over this period rose from 59,086 contracts (equivalent to 184 tonnes) to 62,910 contracts (196 tonnes). Open interest has since eased back from 201,266 contracts to 197,030 contracts, suggesting that some light short-covering may have occurred. Gold lease rates moved slightly lower, but continued to reflect the ongoing tightness in market liquidity, the one-month rate standing at 3.43% and the 12-month rate at 3.24%.

Details of an alternative proposal for financing the IMF's contribution to the HIPC/ESAF debt relief initiative appear to have been inadvertently leaked during the week. According to press reports, the plan calls, in essence, for a revaluation of a portion of the Fund's gold holdings upward from SDR35 per ounce (approximately $48 at current exchange rates) to the prevailing market price. Under the plan, the IMF would sell gold at market prices to countries which have repayments coming due to the Fund for past loans. The book value of the gold would be repaid to the general resources account, and the "profit" realised (market price less current IMF valuation) would be invested and the proceeds used for debt relief purposes. The debtor countries would immediately repay their loans to the IMF with gold, and the Fund would avoid the need for gold sales on the open market.

Physical demand for gold in the Middle East and Asia continues to improve, encouraged by both economic recovery and low international prices. In Dubai, gold imports for the month of July totalled 31.34 tonnes, up from 24.38 tonnes a year earlier. Taiwan's gold imports more than doubled in August to 9.03 tonnes compared with the previous year, while gold imports through India's western city of Ahmedabad rose sharply to 25.27 tonnes in August from 13.88 tonnes the previous year and 14.81 tonnes in July.

The London Bullion Market Association reported that the net average daily clearing turnover in August rose 4.5% from the previous month to 36.4 million ounces (1,132 tonnes), the highest August on record.


(August 30 - September 3, 1999)

A quiet week for gold which consolidated narrowly between $254 and $256, gaining support from the weaker US dollar but failing to break higher in the thin holiday trading conditions. London was closed Monday and gold held around $254 in New York, failing to react to a sharp fall on Wall Street. The market fixed at $254 60 the next morning on the return of London, with the G7 meeting in Berlin being closely watched for comments about possible IMF gold sales. On Wednesday prices firmed to test overhead resistance at $256, but little upward momentum could be maintained ahead of the Labor Day holiday weekend in the US and quotations dropped back towards $254 on Thursday. Prices then recovered to above $255 on light buying interest but the release of US August payroll statistics Friday, showing no sign of a pickup in inflation, sparked light long-liquidation and gold ended the week virtually unchanged at just above $254.

No commitment of traders statistics were released by the Commodity Futures Trading Commission this week. The last figures published, for the two weeks ended August 24, showed renewed speculative short selling on Comex with the net short position of the large speculators moving up to 59,087 contracts (equivalent to 184 tonnes) from 55,064 contracts (171 tonnes). Open interest has tended to rise since then, reaching 201,804 contracts on September 2, suggesting that additional short selling has occurred. Market liquidity remained tight and gold lease rates strengthened once more, especially for nearby maturities, with the one-month rate rising to 3.80%, the six-month rate to 3.83% and the 12-month rate to 3.46%.

It was reported during the week that the IMF was seriously looking at alternatives to selling gold into the open market as a means of raising cash in order to fund debt relief. The plan cited was for the IMF to sell gold to central banks rather than to the market; the central banks could then use the gold to pay their future contributions to the IMF rather than cash. The gold would thus stay within the official sector and the IMF would realise the market value of the gold used; gold on the IMF's books is valued at $46 per ounce and by selling it at market prices more than $200 per ounce profit would be realised. The IMF could pay the $46 per ounce valuation into its General Resource Account and place the balance into a trust fund, the profits from which could be used to help fund the debt relief initiative. While the market was reassured that the IMF was seeking alternatives to outright sales, the plan described is seen as skeletal, with many details needing to be filled in.

The Canadian central bank sold 170,000 ounces (5.3 tonnes) of gold from its reserves during August as part of its long-standing programme of reducing the level of its gold holdings. Canada's gold reserves have now fallen to 1.9 million ounces (59 tonnes).


(August 23 - August 27, 1999)

Gold prices opened the week in retreat from the previous Friday's four-week high of $262, in spite of continued strong physical demand, especially from Asia. News of producer hedging outweighed any impact from the encouraging demand reports. After fixing in London on Monday at $255.90, the price edged lower on Tuesday to $253.40, and then softened further when the Federal Reserve Board's decision to raise two key short term US interest rates was interpreted as further evidence of the government's determination to combat inflation. The Fed funds rate was increased by 0.25% to 5.25%, and the discount rate by a similar amount to 4.75%. Gold eased to $252.85 by the second London fix on Wednesday, and the price slipped to a fresh 20-year low a fraction below $252 in late trading in New York.

Prices then edged back upward, with gold fixing at $253.15 on Thursday and $253.80 on Friday, and closing the week at $253.50/$254.00 in New York. Trading conditions were quiet ahead of a three-day weekend in the UK, and US dealers are looking forward to a similar break next weekend. There was a flurry of option-related activity toward the end of the week, mostly centered around the UK's planned second auction of 25 tonnes of gold from its reserves on September 21, with many people anticipating greater volatility in the gold price. The preferred strategy seemed to be the "strangle", which involves the purchase of both call and put options, the calls with strike prices above the current market price, and the puts at strikes below market prices.

The latest Commitment of Traders report from the Commodity Futures Trading Commission showed an increase in speculator short sales. During the two weeks ended on August 24, the net short position of the large speculators on Comex climbed to 59,087 contracts (equivalent to 184 tonnes) from 55,064 contracts (171 tonnes) on August 10. Gold lease rates remained unusually high, with the one-month rate holding above 3% throughout the week, compared with around 0.5% as recently as May.

Gold demand in Japan continued to climb in July after rising 65% in the first half of the year. Gold imports into Japan for the month of July were 10.2 tonnes. That was more than double the level of a year ago, and a gain of 9% from the June 1999 total.

Some traders are already preparing to step up their activities in anticipation of strong demand during the main festival season in India, which begins in September and peaks in early November with Diwali, the Hindu festival of lights. Incomes in the rural areas where the gold buying in India is concentrated are heavily dependent on good monsoon rains. While there have been suggestions that some northern and western regions have not yet received adequate rainfall, meteorologists say the rains during the four-month season that began in June have been widespread. A definitive assessment of the monsoon will not be available until the season ends in late September or early October.


(August 16 - August 20, 1999)

Gold started the week on a more vulnerable note, following a report in the Financial Times that the G10 group of central banks had criticised the British gold sales programme for putting pressure on them to reassess the role of gold in reserves. Quotations dropped below $260 early Monday and moved down to a fix of $259.00 that afternoon. Buying interest emerged late in New York, however, lifting quotations up to $260 once more. The market remained subdued most of Tuesday, with prices drifting back towards $259 again. Support was evident at this point and short covering arose later, carrying prices up to a fix of $261.50 on Wednesday morning. The market then began to trade sideways as activity fell away, however, and profit-taking then resulted in a gradual weakening in prices. The slide continued Thursday, with quotations drifting back towards $257 despite the dollar hitting seven-month lows against the yen following news of a surge in the US trade deficit to a record $24.62 billion in June. A slight recovery was then staged, and the thin market saw gold hold within a narrow trading range Friday, ending the week in New York at $257.20/257.60.

No commitment of traders statistics were published this week. The last figures released, for the two weeks ended August 10, showed short-covering continuing to take place on Comex, where the net short position of the large speculators fell back from 67,894 contracts (equivalent to 211 tonnes) to 55,064 contracts (171 tonnes). Open interest stood at 193,698 contracts at this point and eased back slightly to 187,413 contracts by August 19, suggesting little overall change in exchange positions. Gold lease rates remained at high levels as the tightness in liquidity was maintained. Over the week the one-month rate rose sharply from 2.41% to 3.02%, the six-month rate less dramatically from 3.42% to 3.53% and the 12-month rate from 3.18% to 3.33%

The World Gold Council released its Gold Demand Trends covering the second quarter of 1999, which was the strongest quarter ever for gold demand. New records for the second quarter were set in India, the world's largest consumer, the USA, the Gulf States and Mexico while the recovery in South-east Asia and in South Korea continued with demand rising to over 90% of the levels seen before the economic and currency crisis. Demand was also higher in the Middle East, while Japan showed continuing recovery.

In India the Reserve bank of India (RBI) announced that the government would allow the RBI and banks authorised by the RBI to enter into forward contracts for the sale and purchase of gold within the country. In Dubai, gold imports during July totalled 31.34 tonnes, up from 23.41 tonnes in June and 24.39 tonnes a year earlier.


(August 9 - August 13, 1999)

The week opened on a stronger tone, with the continued strength in gold lease rates triggering some nervous buying in the physical market. Early trade on Monday saw gold prices jump by more than $1.50 to above $257 before slipping to $256.45 at the morning fix. News that the IMF was seeking ways of raising finance for debt relief without selling gold then lent fresh support to prices, which firmed to a fix of $257.00 Tuesday morning. Professional and fund buying emerged at this level on Wednesday, with one large bank acting as a particularly aggressive buyer. In active trading conditions quotations edged steadily higher, approaching $259 in New York. On Thursday the short-covering and stop-loss buying continued, carrying gold above the $260 level and up to a fixing of $260.30 that afternoon. Activity fell away Friday, however, with the news that US producer prices rose by only 0.2% in July having little impact. Gold ended the week in New York at $260.40/260.90.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows that the net short position of the large speculators continued to decline on Comex over the two weeks ended August 10, falling back from 67,894 contracts (equivalent to 211 tonnes) to 55,064 contracts (171 tonnes). This marks a 36% reduction in the large speculators' short position since the UK gold auction on July 6. Open interest on Comex eased to 193,698 contracts by August 10, but then moved up again to 196,771 contracts by August 12, suggesting that speculators may be switching to the long side. Gold lease rates, although off their peak, are still historically high, showing that market liquidity remains tight; the one-month rate currently stands at 2.41% (compared with 2.97% one week ago) the six-month rate at 3.42% (4.04%) and the 12-month rate at 3.18% (3.76%). The withdrawal of central bank deposits, increased producer hedging and higher speculative activity have all been suggested as the catalyst behind this extended move to higher levels for lease rates, but it remains unclear as to which factor (or combination of factors) are responsible.

Figures released by the London Bullion Market Association for July showed a sharp rise in average daily net clearing turnover in London to 34.8 million ounces (1,082 tonnes), up 14% from the previous month and the highest figure since October.


(August 2 - August 6, 1999)

It was another steady week for gold prices, with the market supported by strong physical demand, particularly from Asia, and the weaker US dollar. Gold started the week slightly easier, fixing at $255.35 on Monday morning. The market attracted little interest until the Tokyo opening on Tuesday, when short-covering and fresh buying started prices moving slightly higher. Most attention was focussed upon platinum, however, which climbed on news of a miners' strike in South Africa. Technically-related buying suddenly emerged on Wednesday morning, carrying gold up in active trading conditions to $257.50 at the morning fix and on to the $258 level before running out of momentum.

Prices then gave up the morning's gains, falling back to $255.85 at the afternoon fix and touching $255 before finding fresh buying interest. Thursday saw quotations steady again above $256; press reports in the UK that Bank of England governor Eddie George had opposed sales from the UK's gold reserves had no apparent impact. On Friday, the inflationary implications of strong US jobs data, together with a reported pickup in average hourly earnings in the US, gave rise to expectations of another increase in US interest rates; gold showed little reaction, however, and closed the week in New York at $256.00/256.50.

No commitment of traders statistics were released by the Commodity Futures Trading Commission this week. The last figures published, for the two weeks ended July 27, showed the net short position of the large speculators on Comex continuing to ease, falling back from 78,860 contracts (equivalent to 245 tonnes) to 67,894 contracts (211 tonnes). Since then, open interest has moved lower, dropping from 198,760 contracts to 193,194 on August 6, indicating that additional modest short covering has since occurred. Gold lease rates have remained unusually high for well over a month, but the tightness in liquidity has now spread across the yield curve and is no longer concentrated in the nearby maturities. Over the week the one-month rate moved up strongly by 54 basis points from 2.43% to 2.97%, the six-month rate surged from 2.90% to 4.04% and the 12-month rate jumped from 2.35% to 3.76%.

Strong opposition in the US Congress to the IMF's plan to sell up to 10% of its gold holdings appears to be influencing the IMF's thinking. Stanley Fischer, deputy managing director of the IMF, was reported as saying that the Fund is looking at ways of avoiding selling gold for debt relief, but cannot rule out sales until an alternative solution is found.

The Canadian central bank reported that it sold 80,000 ounces of gold (2.5 tonnes) during July as part of its long-standing sales programme. Canada's gold reserves now stand at about 2.1 million ounces (65.3 tonnes).


(July 26 - July 30, 1999)

It was a steadier week for the gold market, with prices seeming to find some equilibrium after an extended period of weakness. The market started the week quietly, fixing at $253.50 amid thin European holiday trade on Monday morning. Some producer selling was seen during the day, but quotations managed to hold steady and firmed to $254 later in New York. IMF deputy managing director Alassane Ouattara, in an indirect criticism of the UK, commented that central banks should help pay for debt relief by buying IMF gold, rather than selling their own. The gold market showed little reaction to this statement, however, and prices held within a tight trading range based around $254.50 on Tuesday.

Gold eased back to the $254 level on Wednesday, with most attention focused upon the ongoing tightness in gold lease rates. Opinion remains divided as to the cause of the tightness; some commentators attribute the development to central bank selling, while others maintain that it is due to a combination of reduced lending and higher levels of hedging by producers. The OTC options expiry passed uneventfully, while switching ahead of first notices on Comex was evident. On Thursday US unemployment costs were reported up a surprise 1.1% in the second quarter from 0.4% in the previous quarter, kindling inflation fears and sparking a rally in gold as short-covering was triggered. Gold surged to $257 as the market came suddenly to life, but active producer hedging checked any further recovery and quotations gradually relinquished some of the gains Friday, closing the week in New York at $255.70/256.20.

The latest commitment of traders report published by the Commodity Futures Trading Commission showed the net short position of the large speculators on Comex continuing to decline from the peaks reached after the UK gold auction announcement. In the two weeks ended July 27 the net short position fell back from 78,860 contracts (equivalent to 245 tonnes) to 67,894 contracts (211 tonnes). Over this two-week period, open interest fell from 211,594 contracts to 198,760 contracts, and has since fallen still further, to 189,457 contracts, indicating that additional short-covering may have occurred. The gold borrowing market remains tight; the one-month lease rate was volatile, but eased back over the week from 2.76% to a still-high 2.43%, while the 12-month rate strengthened from 2.04% to 2.25%.

At a meeting in Brussels on Wednesday, mining ministers of the 71 member countries of the African, Caribbean and Pacific Group (ACP) called for a moratorium on central bank sales of gold "until a representative forum is speedily established to explore a central mechanism that can be put in place to ensure that gold sales take place in a structured and orderly manner". The ACP Group includes many countries that rely upon raw material exports for a substantial proportion of their revenues.


(July 19 - July 23, 1999)

Following on from the stalled rally in New York on Friday the market opened weaker in London on Monday, fixing at $253.15 in the morning. A slightly firmer tone then developed but it proved only temporary, and with producer selling emerging from Australia on the next morning, prices soon eased lower once more, with gold fixing at a new 20-year low of $253.00. On Wednesday morning gold was fixed still lower at $252.90, but sustained buying after the New York opening caused prices to bounce suddenly, moving up to $254.50 that afternoon. The prospect of the US Congress blocking sales of gold by the IMF (see below) proved supportive at this point and by Thursday morning gold had recovered to $255.30. In volatile conditions quotations then fell back below $254 only to rebound once again as the threat of IMF sales appeared to recede, strengthening to the $256 level in late New York trading. The market then quietened and gold held around $255 for most of Friday, closing the week at $254.50/255.00.

No commitment of traders statistics were published by the Commodity Futures Trading Commission this week. The most recent figures published, for the two weeks ending July 13, showed the net short position of the large speculators easing on light short-covering from 86,563 contracts (equivalent to 269 tonnes) to 78,860 contracts (245 tonnes). Open interest, which stood at 211,594 contracts at this point, has since dropped back to 204,887 contracts, suggesting that further short covering has since taken place. Gold lease rates have remained both high and volatile, especially for nearby maturities; over the week the one-month rate fell from 2.89% to 2.16%, but then spiked to the current 2.76%, while the 12-month rate slipped from 2.16% to below 2.00% but subsequently firmed again to 2.04%.

Opposition to the proposed sale of IMF gold continued to mount in the US Congress. Over the week Chairman of the House Banking Committee Jim Leach added his voice to the dissenters, saying that not only was he opposed to the plan, but that his committee was likely to reject it. He has asked his staff to work with the US Treasury on alternative means of funding debt relief without selling gold. Larry Summers, Treasury Secretary-elect has meanwhile indicated that the Treasury is independently looking at ways of mobilising IMF gold without further damaging the gold market. The IMF has responded to the strong Congressional opposition by also studying different means of using gold. One suggestion made was that Asian central banks with large foreign exchange reserves could buy the gold, but whether any Asian country has been approached on this matter has not been revealed.

In Russia President Yeltsin rejected a bill giving the central bank the right to buy gold direct from producers. He said the bill needed more work, specifically that the bank should buy "refined gold in ingots" to replenish gold and currency reserves, not just "precious metals" as it is currently worded. The Duma is currently in recess, so work on the amendments will not start before the autumn.

It is reported that Iran is considering easing restrictions on gold imports to help stimulate the domestic non-oil economy, and could allow the import of up to 2 tonnes per month provided that the same quantity of gold jewellery is exported.


(July 12 - July 16, 1999)

Despite widespread reports of strong physical demand for gold, particularly in the Far and Middle East, the market remained under pressure over the week, with traders remaining cautious of further price weakness in the wake of the July 6 UK gold auction and producer and fund selling continuing to undermine market confidence. Initially quotations traded nervously around the $256 level, with active two-way trading conditions seeing no convincing price direction emerging on Monday. Fund-based selling in Asia pushed gold down to a fixing of $254.25 on Tuesday morning, but market activity became relatively subdued during much of the European trading session, allowing a recovery towards the $256 level to develop after the new York opening.

On the next day fresh fund selling reversed the price recovery after Prime Minister Tony Blair defended, albeit confusedly, the UK's decision to sell gold saying "the gold price has been falling for two years and so in fact, if it carried on falling and we didn't sell, we would lose money". Gold responded by fixing at a fresh 20-year low of $253.75 on Thursday. On Friday the market gained support from the news that Placer Dome was suspending the construction of its Las Cristinas gold mine in Venezuela which, together with comments made by IMF deputy managing director Alassane Ouattara, suggesting that gold sales to central banks rather than into the market was an option being examined by the IMF, helped prices firm. Mr Ouattara also suggested that the IMF might work with European countries to limit their gold sales, with the BIS perhaps co-ordinating any sales. Gold gained more than $2 reaching $256.40 bid after the New York opening but subsequently drifted back to end the week at $255.20/80.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows further speculative short selling taking place on Comex during the week ending July 6, with the net short position of the large speculators increasing from 83,611 contracts (equivalent to 260 tonnes) to 86,563 contracts (269 tonnes). During the following week, ending July 13, some short covering occurred so that the large speculators' net short position eased back to 78,860 contracts (245 tonnes). Open interest, which stood at 211,594 contracts at this point, has since eased back below 210,000, indicating that light short covering has continued. Gold lease rates peaked early in the week, with the 1-month rate touching 3.9%; they subsequently edged lower, but still remain very high, the one-month rate at 2.89% and the 12-month rate at 2.16%. The background behind the rise in lease rates remains a mystery, although market theories include a sharp rise in producer hedging, the withdrawal of a major lender from the market and clandestine central bank selling. Figures released by the London Bullion Market Association show that net loco London clearing fell to an average 30.5 million ounces (949 tonnes) of gold per day during June, down from 32.6 million ounces (1,014 tonnes) in May.

The People's Bank of China responded to market weakness by cutting domestic gold prices for the third time this year, reducing the buying price to 69.90 yuan per gram from 72.64 yuan and the selling price to 71.30 yuan from 74.10 yuan.


(June 28 - July 2, 1999)

Although the market remained cautious, prices continued to gradually improve over the week as attention focussed upon the forthcoming July 6 UK gold auction. Gold held above $260 at the start of the week and moved to the top of its recent $258/262 trading range on Tuesday as traders jostled to position themselves ahead of the sale and the 4th of July holiday. Later that day the US Federal reserve announced a 0.25% hike in interest rates to 5%. This move to slow economic growth was widely anticipated and had no obvious impact on prices, but the news that the Fed was shifting its bias back to neutral from the tightening bias adopted the previous month came as a surprise, seemingly ruling out the likelihood of further rate rises in the near future. Short-covering emerged Thursday and gold enjoyed a brief rally to above $263 before running into overhead resistance. The market traded narrowly Friday as the long US holiday weekend and the UK gold auction became imminent, ending a nervous week in New York at $263.00-263.50.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows the net short position of the large speculators remaining high on Comex. During the week ended June 22 it continued to grow, moving up from 84,946 contracts (equivalent to 264 tonnes) to 86,859 contracts (270 tonnes); during the following week, ended June 29, some light short-covering occurred so that the net short position eased to 83,611 contracts (260 tonnes). Since then open interest has fallen from 208,202 contracts to 202,902 contracts by July 1, indicating that some further short-covering may have taken place, but not on a major scale. Gold lease rates spiked over the week, the one-month rate surging from 1.04% to 1.44% and the 12 month rate less dramatically from 1.66% to 1.74%. There is no ready explanation in the market for this sudden tightening in liquidity, but it has been suggested that a central bank may have withdrawn its deposits.

On Thursday legislation to veto the proposed sale of IMF gold to help fund the debts of highly-indebted poor countries was introduced to the US Congress by Joint Economic Committee Vice Chairman Jim Saxton and House Republican Leader Dick Armey. The bill calls for the prohibition of IMF gold sales unless they are in the form of restitution to member countries.

The Swiss National Bank said that a small decline in its declared assets of gold and claims from gold transactions entirely reflected normal fluctuations in gold lending and not gold sales.
At the Southern African Economic Forum South African President Thabo Mbeki strongly criticised the UK's decision to sell off part of its gold reserves, saying that the move has threatened the viability of various gold mines in South Africa itself and created a potentially disastrous effect on the economies of southern Africa. In separate news, five South African gold mines are seeking permission to retrench about 8,000 mine-workers.


(June 21 - June 25, 1999)

The gold market developed a steadier tone over the week, gaining support from the growing opposition in the US Congress to the proposed IMF gold sales and holding mainly within a $258-262 trading range. Activity remained quiet, however, with attention focussed upon not only the IMF debate in the US but also the approaching first UK gold auction on July 6. On Tuesday US Deputy Treasury Secretary Lawrence Summers said before the Senate Banking Committee "the law requires congressional authorisation for IMF gold sales or for US support for IMF gold sales, and so if that approval and authorisation is not forthcoming the United States will not be able to support in any way IMF gold sales." While this was largely ignored as old news, the presence of South African gold mining officials in Washington lobbying against IMF sales was viewed with more interest.

On Wednesday the IMF debate gained further prominence with US joint economic committee vice chairman Jim Saxton saying that the plans would be met with great resistance by US lawmakers and foreign relations committee chairman Jesse Helms also expressing opposition to IMF sales, warning that it would unnerve financial markets and hurt US gold producers. Quotations responded by rising above $260 in New York Wednesday and continuing up to $261.50 in London on Friday morning. Technically based selling set in as the week drew to a close, however, and after fixing at $260.70 in the afternoon gold drifted further to close in New York at $259.40-259.90.

No commitment of traders statistics were released by the Commodity Futures Trading Commission this week. The last figures published, for the two weeks ended June 15, showed further speculative short-selling taking place on Comex with the net short position of the large speculators rising from 78,771 contracts (equivalent to 245 tonnes) to 84,946 contracts (264 tonnes). Open interest has continued to ease back, but still remains high at 207,242 contracts, indicating that the market is still very short. Gold lease rates firmed over the week, the one-month rate moving up strongly from 0.89% to 1.04% and the 12-month rate from 1.52% to 1.66%.

Concern over the impact of official gold sales on developing economies continued to mount. On Wednesday the Ghanaian Mines and Energy minister Fred Ohene Kena called upon the IMF to drop its plan to sell gold in order to fund its HIPC initiative, claiming that it would cripple gold-producing economies. "The IMF must look at some other means of supporting distressed countries that depend heavily on gold to fund their economies instead of selling gold, especially when the price of the commodity is already down" he said, adding "most gold producing economies are already reeling under the pressure of the recent gold price depreciations". Tanzania, another country covered by the HIPC initiative, also expressed opposition to the IMF plan, while on Friday South African President Thabo Mbeki said in a state-of-the-nation address to parliament "Government remains preoccupied with the issue of gold sales and their impact on gold mining, employment and export earnings." As an example of the growing problem, Cluff Mining reported finding a deposit containing an estimated 500,000 ounces of gold in Burkina Faso, but the start of mining has been postponed because of the current low price of gold.

In Russia the State Duma passed a bill allowing the central bank to buy gold directly from domestic producers to replenish gold and currency reserves. At present the central bank can buy gold only from other state bodies or from commercial banks. The bill has still to be approved by the upper house and then be signed into law by the president. It was also announced that the central bank and its subsidiary Vneshtorgbank are to offer interest free loans to the gold mining industry. The loans could cover up to 30% of the value of a mine's expected output and would be repaid from production at the central bank's official price on the day the loan was extended minus 2% commission.


(June 14 - June 18, 1999)

With many dealers attending the Financial Times World Gold Conference in London, market activity was quiet at the start of the week. Gold nevertheless showed some initial firmness after Friday's short-covering, moving above $260 on Monday and fixing at $260.35 that afternoon in London. With trading volumes low, some hedge book restructuring in the Far East was enough to cause prices to weaken again, however, and quotations slipped back below $260 on Tuesday. The market then settled into a tight trading range centred on the $258-259 region, with activity too low to generate any significant price movements. On Thursday US consumer prices were reported as unchanged in May, easing fears of an increase in US interest rates. Federal Reserve chairmen Alan Greenspan said in testimony to Congress that the fall in the gold price was more a reflection of a decline in global inflation than the effect of central bank sales. By contrast, New York Federal Reserve chairman William McDonough told another meeting that the spectre of central bank sales had distorted the inflation signal that gold was believed to have sent in the past.

On Friday the news that the Swiss parliament had rejected a constitutional amendment that would have allowed the transfer of gold from the central bank to third parties such as the proposed Solidarity Foundation sparked a sharp rally, sending prices swiftly up by over $4 to $263 in the morning. A statement from the Swiss National Bank saying that the vote did not alter plans to sell gold once the enabling legislation was in place, probably early next year, reversed the move in gold, however, and quotations quickly retreated below $260 once again, before steadying to close the week quietly at $259.30-259.80.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows that further speculative short-selling took place on Comex during the two weeks ended June 15, with the net short position of the large speculators rising from 78,771 contracts (equivalent to 245 tonnes) to 84,946 contracts (264 tonnes). Open interest, which at 212,568 contracts was at this point at its highest for three years, has since eased back a little to 210,227 contracts, suggesting that some light short-covering has since occurred, but the market nevertheless remains very short. Gold lease rates weakened slightly over the week, the one-month rate easing from 0.91% to 0.89% and the 12-month rate falling from 1.57% to 1.52%.

G7 leaders meeting in Cologne reached agreement in principle on Friday that the IMF should sell about 10% of its gold reserves to fund poor country debt relief. Commenting after the meeting, US Treasury undersecretary Timothy Geithner said: "If and when gold sales are approved by the US Congress and by the IMF's board, they would design a carefully phased programme that would take place over a number of years in order to minimise any effect on gold prices." Klaus Gretschmann, chief economic advisor to German Chancellor Gerhard Schroeder, said: "There was agreement in the G7 that gold would be sold at the right time. That means not necessarily when prices are at a record low."

A World Gold Council study entitled "A Glittering Future?" was published on Thursday. The study showed that plans by the IMF to sell gold to help finance debt relief for poor countries were flawed in that many of the countries in question are gold producers, and that the recent fall in the price of gold as a direct consequence of the plans of the IMF, Switzerland and the UK to sell gold has already cost these developing nations more than $150 million in annual export earnings. The full text of the study is available on the World Gold Council's website www.gold.org


(June 7 - June 11, 1999)

The market largely maintained its bearish tone over the week, with market sentiment remaining depressed by the threat of central bank sales of gold. Gold opened the week little changed from Friday, trading above $265 on Monday, but concentrated selling out of Australia and Japan impacted prices overnight in the Far East and quotations were pressured down to a fixing of $263.85 in London on Tuesday morning. Further selling emerged after the US opening, reportedly largely options-related, and gold fell to a fixing of $262.35 that afternoon; the weakness of the US dollar provided little apparent support for prices and gold continued to slip, falling below $260. Rumours of central bank selling in the market were widespread by this time, but the Greek and Danish central banks, both included in the rumours, denied any selling activity and after fixing at a new 20-year low of $258.35 Thursday morning prices bounced as short-covering arose. Prices continued to rally early Friday, only to run into overhead resistance at the $261 level; a steadier tone seemed to develop, however, and quotations held up for most of the day, closing the week quietly at $260.50-261.

There were no commitment of traders statistics released by the Commodity Futures Trading Commission this week. The last report, for the two weeks ended June 1, showed some light short-covering occurring towards the end of this period and the net short position of the large speculators on Comex easing back from 85,438 contracts (266 tonnes) to 78,771 contracts (245 tonnes). Open interest since then has grown from 195,185 contracts to 213,445 contracts, probably indicating renewed short selling over the week. Gold lease rates firmed over the week reflecting both speculative short-selling and producer hedging activity, the one-month rate moving up from 0.83% to 0.91% and the 12-month rate from 1.46% to 1.57%.

On Saturday June 12, G7 finance ministers reached initial agreement on the number of highly indebted countries that would qualify for debt relief under the HIPC scheme and the likely total of loans to be written off. It was also agreed in principal that the debt relief would be part-financed by the sale of up to 10 million ounces (311 tonnes) of gold from the IMF's reserves. The German government confirmed it had dropped its opposition to the sale of IMF gold, but the Bundesbank's position remains unclear. The US congress, where opposition to the proposal has been building, also has to approve the scheme.

At the Financial Times World Gold Conference in London James Cross, deputy governor of the South African Reserve Bank, expressed the desirability of co-ordinating any future sales of official gold. He maintained that the announcement of sales by the Bank of England was not solely responsible for the current weakness in gold prices. Other contributary factors were the widely-debated possibility of future gold sales by the IMF and Swiss National Bank. In order to restore some order and confidence to the market he suggested that an organisation such as the Bank for International Settlements should assume the role of an "honest broker", co-ordinating and marketing any sales on the lines of government debt auctions. A calendar of auctions would be announced well in advance and participating central banks could retain their anonymity until such time as their individual rules require them to make an announcement.

Elsewhere in the news, the European Central Bank announced that its gold holdings had decreased modestly from 105.323 billion euros to 105.307 billion euros. This 16 million euro (1.9 tonnes) decline was reportedly caused by "the unwinding of a technical transaction between two central banks that had taken place at the end of 1998 in connection with the subsequent transfer of foreign reserve assets to the ECB". This undoubtedly refers to Luxembourg and Belgium.


(May 31 - June 4, 1999)

With both the UK and US markets closed for holidays on Monday, prices held steady at around $269, but price weakness returned immediately London dealing resumed on Tuesday and gold fell to $265.50 at the morning fix. Modest short-covering during the European session on Wednesday lifted gold to an afternoon fix of $267.15. Late New York trading saw support suddenly evaporate, however, and with fund selling also evident in the Far East, prices plunged to a fixing of $263.85 on Thursday morning, a fresh 20-year low. Technical support held at this level and short-covering then pushed gold up to $266.50 on Friday morning before settling nervously to close the week at $265.10/265.60.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows that short-selling continued on Comex during the week ended May 25, with the net short position of the large speculators increasing from 80,546 contracts (equivalent to 250 tonnes) to 85,438 contracts (266 tonnes). Some light short-covering set in over the following week, however, so that the large speculators' net short position eased back to 78,771 contracts (245 tonnes). Open interest has since fallen by more than 3,000 contracts to 195,185 contracts, probably reflecting some further short-covering. The one-month gold lease rate eased once more, from 0.88% to 0.83%, while the 12-month rate continued to firm, moving up from 1.42% to 1.46%.

In China it is reported that plans to bring gold product prices more closely into line with the international market are being drafted. This reform of the pricing system would include changing retail and wholesale price setting mechanisms and reducing taxes on producers. Domestic prices are currently 20-35 yuan per gram ($75-130 per ounce) higher than in other countries in the region. No timetable has yet been set for the reforms.

The Bank of England announced that following its first auction of gold on July 6, the results will be released within 45 minutes of the 11.30 AM (10.30 GMT) deadline for bids. The Canadian central bank, meanwhile, announced that no gold had been sold during May.

At the Bank for International Settlements' annual meeting, general manager Andrew Crockett said "I have the strong impression from conversations taking place at the BIS that gold will continue to play a major part in reserves, and that most of the major gold holders are not contemplating selling gold, so I do not expect there to be major changes in the role of gold."


(May 24 - May 28, 1999)

The gold market remained under downward pressure over the week, continuing to suffer from the bearish market sentiment that has prevailed since the May 7 announcement that the UK Treasury will be selling 415 tonnes of gold from reserves, beginning with a 25 tonne auction on July 6. After opening the week at $272.50/273.00 gold slipped to a succession of new 20-year lows, starting with the fixing of $272.20 in London on Monday morning. Good physical demand helped check the decline at this point and prices held steady until Tuesday, when Bank of England governor Eddie George answered questions about the UK's forthcoming gold sales before a parliamentary committee; he defended the move as "straightforward" and a "reasonable portfolio decision", controversially citing once again gold's proportion in net reserves rather than the internationally accepted gross reserves measure. Quotations reacted by dropping to $271.70 at the PM fixing and continued down to $269.20 before bouncing back above $270 by the New York close.

The OTC options expiry Wednesday had little impact on prices which started to weaken once more, pressured by short and producer selling as well as the strong dollar. At the same time silver and base metals suffered sharp declines. Gold fixed at $269.50 that afternoon and dropped still further to $268.25 on Thursday morning. A slightly firmer tone began to develop after the New York opening, however, initially fuelled by rollover activity on Comex as participants switched out of the June contract into August. The approach of the long holiday weekend in the UK and US also proved supportive, encouraging some light short-covering, while it was reported that some profit-taking in put options was also taking place. The recovery continued Friday morning with gold rising to $271.05 at the morning fixing. Renewed selling emerged after the US opening, however, and prices eased again to close the week in New York at $270.00/270.50.

No commitment of traders statistics were released by the Commodity Futures Trading Commission this week. The last figures published, for the two weeks ending May 18, showed the net short position of the large speculators surging on Comex from 49,852 contracts (equivalent to 155 tonnes) to 80,546 contracts (250 tonnes) in response to the UK gold sales announcement. Since then open interest has fluctuated on the upside, suggesting further short selling, but eased back to 197,817 contracts by May 27, little changed from one week before. The one-month gold lease rate dropped back from 1.01% to 0.88% reflecting the continued ready availability of nearby liquidity, while the 12-month rate firmed once more from 1.39% to 1.42%, probably resulting from increased producer hedging.

In India the implementation of the proposed gold bond scheme announced in the February budget has been delayed by mid-term elections. Meanwhile, weather forecasters are predicting a normal monsoon for the 11th consecutive year, an important indicator for the bullion trade as some two-thirds of India's population rely upon agriculture for their livelihood.


(May 17 - May 21, 1999)

The market opened the week on a steadier note as gold initially took a breather in the wake of the previous week's volatility. Gold was fixed at $276.10 in London on Monday morning and held steady throughout the European trading day. Market opinion remained gloomy following the UK's announcement of its decision to auction some of its gold reserves, however, and late selling in New York soon drove prices lower once more. On Tuesday morning gold slipped to a fixing of $274.70 but then stabilised ahead of the Federal Open Market Committee meeting. The Fed's decision to leave US interest rates unchanged had little impact and quotations eased back to the $274 level. Comments by Banque de France governor Trichet in which he said that the position of France, Germany, Italy and the United States was not to sell gold provided little support for the market, and gold dropped to a 20-year low on Wednesday, fixing at $272.50 that afternoon.

Some steady buying helped to underpin prices at that point, and statements from both US Treasury Secretary Robert Rubin and Federal Reserve Governor Alan Greenspan that the United States should not sell gold from its reserves helped gold to rally above $274 on Thursday. On the next day prices started to test overhead resistance at $275, but a sharp fall in silver prices following the release of the Silver Institute's World Silver Survey, which showed a drop in demand, quickly fed through into gold and the market fell back to close the week in New York at $272.75/273.25.

In the wake of the UK sales announcement, speculative short-selling has gained new strength. The latest figures released by the Commodity Futures Trading Commission showed the net short position of the large speculators on Comex rising from 49,852 contracts (equivalent to 155 tonnes) to 80,546 contracts (250 tonnes) during the two weeks ended May 18. Open interest has edged up from 196,892 contracts to 197,734 contracts since then, suggesting that some further short-selling may have taken place. The one-month gold lease rate eased back from 1.13% to 1.01% as the availability of nearby liquidity increased, while the 12-month rate firmed from 1.28% to 1.39%.

In India, implementation of the gold bond scheme announced by Finance Minister Yashwant Sinha in his February budget looks likely to face delays. The scheme is awaiting decisions from other ministries on several issues. These relate to export and import regulations, and to allowing forward trading so as to permit hedging. It is also thought that assaying centres will have to be established before the scheme can be launched.


(May 10 - May 14, 1999)

With market sentiment still suffering from the effects of the Bank of England's announcement that it was to auction 415 tonnes of gold from its reserves, the week started poorly for prices. Having already fallen from near $290 to $282 on Friday, gold came under renewed pressure in the Far East on Monday and opened lower in London, fixing that morning at $280.65. Further selling arose later on the US opening, with one large dealer reportedly selling 1,000 lots on Comex and pushing gold down to $278.00 at the PM fixing. Reports that the Bundesbank, the Bank of Italy, the US Treasury, the Japanese Finance Ministry and the Australian central bank had denied any intention to sell gold then appeared to lend a measure of stability to the market, and gold firmed to a fixing of $279.45 on Tuesday afternoon. The bearish tone resumed on Wednesday, however, and although prices bounced slightly on the news that US Treasury Secretary Robert Rubin was to step down, the downtrend was maintained and gold dropped to the $277 level in New York. Physical and bargain-buying in the Far East then lent support and the market consolidated nervously until Friday afternoon when fresh short-selling in New York pressured quotations down to a low of $275.20. The market then recovered slightly to end the week at $275.70/276.20.

No commitment of traders statistics were released by the Commodity Futures Trading Commission this week. The last figures released were for the two weeks ending May 4 and showed heavy short-covering occurring on Comex towards the end of this period, with the net short position of the large speculators falling sharply from 80,092 contracts (equivalent to 249 tonnes) to 49,852 contracts (155 tonnes). Since then open interest has fallen by more than 4,000 contracts to 89,067 contracts. Nearby liquidity continued to tighten over the week causing the one-month gold lease rate to jump by 27 basis points to 1.13%, above two, three and six-month rates, while the 12-month rate eased back from 1.41% to 1.28%.

The low levels of activity in the market during April were reflected in the net average daily clearing statistics published by the London Bullion Market Association. A record low of 25.2 million ounces (784 tonnes) was reported, a fall of 13% from the previous month and 37% lower than in April 1998. In an interview with Reuters, the Bank of England's former head of Treasury Terry Smeeton regretted the Bank's decision to sell more than half its gold reserves. "It's not a policy I would have advocated when I was at the Bank. I am sad this action has been taken" he said. "It's clearly a Treasury decision in which the Bank has had to acquiesce." On Wednesday the Reserve Bank of India said it would allow local companies to hedge exposure to bullion prices arising from export commitments on the London Bullion Market and other recognised international exchanges.


(May 3 - May 7, 1999)

With market activity at a low level because of the UK bank holiday, gold prices eased gently below $286 on Monday. The reopening of London on Tuesday initially had little impact, with trading volumes remaining low and prices continuing to drift lower, and gold fixed at $285.30 that afternoon. A stronger tone began to develop the next day, with the continuing view that the market had been oversold encouraging some speculative buying. Australian dollar strength - seen as reducing the likelihood of producer hedging - together with Federal Reserve chairman Alan Greenspan's warning that the tight US jobs market might trigger inflation, helped the rally gain momentum on Thursday. Gold fixed at $287.95 that afternoon and moved above $289 by the New York close. Friday's announcement that the UK Treasury was planning to embark on a programme of gold sales (see below) then served to rapidly undermine the market, however, and prices plunged amid active trading to a PM fixing of $282.40 before bouncing slightly to close the week in New York at $282.50/283.00.

The release of commitment of traders data by the Commodity Futures Trading Commission showed that further speculative short-selling took place during the week ending April 27, with the net short position of the large speculators on Comex rising from 73,690 contracts (equivalent to 229 tonnes) to 80,092 contracts (249 tonnes). The following week, ending May 4, saw heavy short-covering set in, however, and the net short position fell sharply to 49,852 contracts (155 tonnes). Over the next two days open interest declined by just over 2,000 contracts to 191,216 contracts, indicating that additional short-covering may have taken place. Liquidity appeared to tighten over the week and gold lease rates firmed in response, the one-month rate jumping by 37 basis points to 0.86% and the 12-month rate moving up from 1.27% to 1.41%.

On Friday, the UK Treasury released a statement before the London market opened announcing a restructuring of the UK's reserve holdings. This would involve a programme of gold auctions, with the proceeds being invested instead in foreign currency assets (40% in US dollars, 40% in euros and 20% in yen) and retained in reserves. The initial intention is to sell 125 tonnes in fiscal 1999/2000 through a series of 5 auctions of around 25 tonnes each. The first auction will take place on July 6 with the others being in September and November 1999 and January and March 2000.

Subsequent to this it is planned that a further 290 tonnes of gold will be auctioned "in the medium term", bringing the UK's gold reserves down from the current 715 tonnes to 300 tonnes. Plans for further auctions will be announced nearer the time. Eligible bidders will be members of the London Bullion Market Association - on their own account and on behalf of their clients - and official holders of gold accounts at the Bank of England. The gold sold will be allocated on a uniform price basis to the highest bidders at a single price equal to the "lowest accepted bid".

This move has given rise to strong opposition, both within parliament and elsewhere. The government has been accused of seeking to pre-empt the result of the promised referendum on membership of EMU by taking this step, as on becoming part of the euro zone the UK would become subject to ECB guidelines with regard to reserve management. For more details and comment on this development see the World Gold Council website (www.gold.org)

Elsewhere, the Canadian central bank announced that it sold 135,000 ounces of gold in April as part of the long-established programme of gradually reducing the level of its gold holdings, leaving reserves at about 2.2 million ounces (68 tonnes).


(April 26 - April 30, 1999)

It was a slightly more volatile week for prices, although trading conditions remained mostly subdued. The market opened the week steadily, with gold fixing little changed at $283.10 in London on Monday morning. A recommendation from UK Chancellor of the Exchequer Gordon Brown that the IMF should sell at least 10 million ounces of gold, rather than the 5 million that had previously been under discussion, started to undermine confidence later in the day, however, and selling soon after the US opening pushed quotations below $282. On the next day US Treasury Secretary Rubin and Japanese Finance Minister Miyazawa lent verbal support to higher gold sales by the IMF, and the price fell to a PM fixing of $281.05, but good support from physical demand emerged at this point. On Wednesday, South African finance minister Trevor Manuel said that South Africa could support IMF gold sales only up to a total of 5 million ounces, citing the adverse impact larger sales would have on South Africa and on other African gold producers. Prices firmed, and consolidated above $283 until Thursday. Strong buying in silver spilled over into gold during late trading in New York, sparking stop-loss buying as overhead resistance at the $285 level was broken. The buying continued on Friday, albeit more cautiously, and quotations firmed to a PM fixing of $286.60.

No statistics were released by the Commodity Futures Trading Commission this week. The latest figures published, for the two weeks ended April 20, showed some short-covering, with the net short position of the large speculators on Comex easing back from a record 88,363 contracts (equivalent to 275 tonnes) to 73,690 contracts (229 tonnes). Open interest still remained relatively high at 193,285 contracts on April 30, however, indicating that little additional short-covering had occurred. Gold lease rates for the near-term were little changed over the week, the one-month rate moving up only marginally to 0.49%; longer term lease rates dropped lower, however, the 12 month rate falling from 1.36% to 1.27%.

In spite of the supportive comments for IMF gold sales made by a range of politicians over recent weeks, the proposal is far from a done deal. An 85% majority of the fund's total voting power is required for any gold sales to take place, and opposition still exists among some Fund members. Although the US administration is in favour of the gold sales proposal, the US vote cannot be cast without the prior authorisation of Congress, where tough scrutiny is promised; Congressional approval is vital as the US weighted vote of almost 18% on the IMF executive board is an effective power of veto on the gold sales proposal. On Wednesday, Congressman Jim Saxton, vice chairman of the Joint Economic Committee, said that the sizeable expansion of the proposed gold sales by the IMF would intensify congressional opposition to the idea. He went on to say that there were a number of alternatives to gold sales, and that serious bipartisan reservations existed in both the House and the Senate.


(April 19 - April 23, 1999)

Gold held within a narrow $283-285 trading range throughout the week. Activity was subdued, with the previous weekend's news regarding Switzerland's adoption of a new constitution which could eventually lead to some gold sales having no apparent impact on prices. Market commentators suggested that the Swiss developments had already been fully discounted in the price. Further support from politicians towards the end of the week for IMF gold sales was similarly disregarded, and the market closed the week little changed at $283.30/283.80.

The latest commitment of traders report published by the Commodity Futures Trading Commission shows that some short-covering occurred during the two weeks ended April 20, with non-commercial short positions easing back from 97,713 contracts to 85,765 and non-commercial long positions edging up from 9,350 contracts to 12,075. The net short position of these large speculators, while down on the record 88,363 contracts (equivalent to 275 tonnes) reported for April 6, nevertheless remained relatively high at 73,690 contracts (229 tonnes). Open interest also remained high throughout this period and stood at 195,646 contracts on April 22. Gold lease rates remained stable over the week, the one-month rate barely changed at 0.47% and the 12-month rate firming only slightly from 1.32% to 1.36%.

Gold Fields Mineral Services Ltd (GFMS) published its annual survey of developments in the gold market during 1998 on Wednesday. On the supply side GFMS estimated a 3% increase in mine production to 2,555 tonnes, and an 88% fall in the net effect of mine hedging to only 58 tonnes. The report estimates net official sales at 412 tonnes even though there was no confirmation of any significant sales last year. Recycled gold scrap rose by 75% to 1,098 tonnes, mainly because of the economic crisis in East Asia. On the demand side GFMS estimated a 5% fall in fabrication to 3,709 tonnes, again mainly due to the East Asian situation. This was partly offset by strong increases in demand in Europe, North America and the Indian subcontinent. The report estimates investment demand, including short-covering by speculators, switching from a negative 271 tonnes in 1997 to a positive 260 tonnes.

On Wednesday Russia's State Duma voted to permit the Russian central bank to buy gold directly from domestic producers rather than through Gokhran (the finance ministry's purchasing arm), or commercial banks as at present. The bill still has to pass through several other procedural steps before it becomes law, but the central bank has actively pursued the legislation as part of its plan to build reserves and help finance the mining industry. The central bank has announced plans to buy up to 90 tonnes of gold to add to its reserves this year. Also in Russia, a resolution was published Thursday in the official gazette imposing a five per cent export tariff on precious metals for six months from April 30. This development has met with some opposition and the Gold Industry Workers Union plans to appeal to President Yeltsin to abolish the tariff.


(April 12 - April 16, 1999)

The gold price maintained the stronger tone that had begun to develop during the previous week, with bullion dealers buying actively in an attempt to squeeze the record short position on Comex revealed on April 6. The week opened with a move above $283, but the price stalled as the threat of IMF gold sales came to the fore once more, with both IMF deputy managing director Alassane Ouattara and UK Chancellor Gordon Brown voicing support for the proposal. Bundesbank president Hans Tietmeyer indicated on Thursday that gold sales were not on the agenda of the April 27 meeting of the IMF's interim committee, however, and the market quickly refocused on squeezing the large speculative short position. Some short-covering began to emerge on Thursday, and on Friday gold moved up to $285 before easing once more to end the week at $283.60/284.10.

No commitment of traders report was issued by the Commodity Futures Trading Commission this week. The last report published, for the two weeks ended April 6, clearly demonstrated the high levels of speculative short-selling that had been depressing the market. That report showed the net short position of the large speculators on Comex surging from 54,029 contracts (equivalent to 168 tonnes) to a record 88,363 contracts (275 tonnes). Since then open interest has remained very high, standing at 199,018 contracts on April 15, indicating that little in the way of net short-covering has occurred in the interim. Gold lease rates were barely changed over the week, the one-month rate holding at 0.48% and the 12-month moving up slightly to 1.32%.

The latest net clearing statistics released by the London Bullion Market Association showed a 6% recovery in activity in March from the depressed levels of the previous month, with an average 28.5 million ounces (886 tonnes) of gold being transferred each day. This was still more than 20% below the levels of March 1998, however. The LBMA said that despite good physical demand, evidenced by tight premiums in the Far East, from the middle of the month prices were pressured lower by "a chorus of voices (French President Chirac, American President Clinton and IMF managing director Camdessus) expressing support for proposed IMF gold sales."

Swiss voters approved a new constitution in a referendum over the weekend. This paved the way for legislation to remove the constitutional link between the Swiss franc and gold, although the link ceased to be a practical reality many years ago. The need to gain further agreement on other legislative and political factors in the process mean that there is still a lengthy agenda ahead before the Swiss will be in a position to sell any of their gold reserves; for further information on this process, see the publication "Switzerland's Gold" which can be accessed via the WGC website (www.gold.org). [It may be viewed directly on your internet browser at the USAGOLD Gilded Opinion, where it is reproduced by permission of WGC. http://www.usagold.com/swissgoldwgc.html ]


2001 Archive for The Week in Gold

2000 Archive for The Week in Gold

1999 Archive for The Week in Gold

Editor's Note: Reprinted with the permission of the World Gold Council/New York. Market Commentary is a review of the major events shaping opinion in the gold market during the past week. It is compiled by Council staff in London and New York based on contacts in the market and a network of WGC offices around the world.

If you have any questions or comments on this input, please address them to George Milling-Stanley in the New York office, Tel. +212 317 3800, Fax. +212 688 0410, E-mail: George.Milling_Stanley@wgcny.gold.org

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