Gold price drops to 19-year low of $277.90 an ounce Safe haven loses luster, and cash-poor Russians may be looking to sell

August 29, 1998|By BLOOMBERG NEWS

NEW YORK -- Gold fell to a 19-year low yesterday on concern zTC that Russia may sell gold from its reserves, dumping even more on the market at a time when the metal has lost its appeal as a safe haven in turbulent economic times.

No longer is gold the asset investors hoard when other assets tumble. In the middle of global financial turmoil kicked off by Russia this week, the precious metal is down almost 4 percent since Monday. Gold for December delivery fell $2.20 to $277.90 an ounce in New York yesterday, the lowest since June 1979.

"When should people buy gold as a haven if they don't buy it now?" asked Fredric Panizzutti, head of research at MKS SA in Geneva. "It looks like people really don't consider gold as a safe haven anymore."

The decline, sparked by concern that Russia will have to sell gold to raise cash to pay its foreign debt, is the latest in a 2 1/2 -year slump for gold, which fetched more than $400 an ounce in February 1996.

Gold is down 35 percent since then because other financial assets, such as bonds, offer better returns when inflation is low. And the economic turmoil in Asia has hurt demand for jewelry.

For now, interest in buying gold is nonexistent, said Urs Frei, head of gold trading at Credit Agricole Indosuez in Geneva. "The 'safe haven' idea is dead here in Geneva," he said. "There is no customer buying."

It's easy to see why. An investor who bought 30-year U.S. Treasury bonds two years ago would have realized a return of 38.2 percent by now. Over the same period, the price of New York gold futures has dropped 29 percent.

"People now feel that cash, Treasury bills or certificates of deposit are better things to have" than gold, said Lee Edelman, ** president of Marco Polo Precious Metals, a New York-based refiner that sells gold to jewelers and coin-makers.

And gold isn't alone. The Commodity Research Bureau index of 17 commodities is at a 21-year low, as supplies of everything from crude oil to cattle rise, and demand is weakened by Asia's eco- nomic problems. That's kept inflation in check in most industrialized countries. Consumer prices in the United States rose only 1.5 percent in the first seven months of this year.

"There's no reason to own commodities if you are an investor," said Vincent Lanci, a trader at Berard Capital Management in New York. "Commodities are demand driven and there is no demand, so any investor can smell blood and is bailing out."

Gold has tumbled this week because of concern that Russia will be forced to sell from its reserves after the ruble tumbled almost 40 percent since Tuesday.

"The market is running on rumors about Russia and sales by other producers, and traders are shorting gold because of that," said Tony Cadle, a gold analyst at Rice, Rinaldi & Turner in Johannesburg.

Russia wouldn't be the first to shed gold reserves. Last year, 18 nations sold gold worth an estimated $4.3 billion as central banks sought better returns elsewhere, adding to gold supplies and depressing prices that hovered below $300 an ounce.

There also is speculation that producers are increasing sales to take advantage of the weakness in their home currencies, which means they get more for gold priced in dollars.

Pub Date: 8/29/98

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