Swiss Bank lending sends gold lower Falling Asian currencies, rising dollar, contribute to weakness in gold

Precious metals

December 13, 1997|By BLOOMBERG NEWS

LONDON -- Gold slipped to near its lowest price in 18 years yesterday as the Swiss National Bank said it began lending gold last month, yet another sign government gold holdings are finding their way to market.

Switzerland, the world's fifth largest gold holder, began lending the metal to other banks last month, said SNB Vice President Jean-Pierre Roth at a news conference. The move was the bank's first gold transaction since 1976.

The Swiss announcement came amid concern that central banks worldwide want to lend or sell their gold to generate returns on an asset that they had left untouched in order to back their currencies. That increases the potential supply of the metal to the 40,000 tons held by governments worldwide, about 15 times annual mine production.

"The point is, nobody is saying they want to buy the metal," said Andy Smith, a precious metals analyst at UBS in London, referring to European central banks. "What we have here is a dramatic change in attitude on the part of the central banks."

Spot gold dropped 90 cents to $304.50 a ton in London inter-bank trading. On Tuesday, gold fell to $281.35, its lowest price in 18 years.

Gold has tumbled as much as 23 percent since the start of the year, when it was $369.65 an ounce, largely reflecting concern about potential sales of gold from central bank reserves.

Plunging currencies in Asia are also hurting dollar-priced gold, by making it more expensive in a region that has been driving demand growth in recent years.

The Indonesian rupiah tumbled 6.44 percent and the Thai baht dropped 4.26 percent against the U.S. dollar in trading yesterday. That took their declines the past six months to more than 45 percent.

Currencies of South Korea, Japan, Taiwan, the Philippines and Singapore also extended declines in recent months on concern about slowing economies in the region.

Japan, South Korea and Southeast Asian countries, including Thailand and Indonesia, accounted for almost one-quarter of world gold demand in 1996, according to the World Gold Council, a gold marketer funded by producers.

"The strongest relationship in recent years is with gold and the U.S. dollar," said John McDonald, an analyst at Eyres Reed Ltd., a stockbroking company based in Perth, in Western Australia. "As the U.S. dollar rises, gold drops."

Argentina last week said it switched most of its gold reserves into U.S. government bonds to get a better rate of return on investment. The Reserve Bank of Australia said in July it had sold two-thirds of its gold reserves to fund investment in government securities.

Pub Date: 12/13/97

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