Rumor Drags Down Gold Price : Precious metals: A London paper reports that $4 billion of Soviet gold has been secretly sent to Europe to raise money for badly needed food. The Soviets deny it.
Fears of wild gold selling by the Soviet Union pushed the precious metal to a five-year low Wednesday before prices recovered late in the day, causing some experts to forecast a bleak future for the lackluster gold market.
The spot futures price of gold on New York’s Commodity Exchange traded as low as $341 an ounce, its lowest price since June, 1986, before rising to close at $345.40 an ounce, down $4.50 from Tuesday’s close.
Analysts said the market reacted to a report in a London newspaper that the Soviet Union had secretly shipped $4 billion worth of gold to European money centers as it prepares to pay for much-needed food and other imports. The report was quickly denied by the Soviet state bank. Rumors of selling by Middle East investors also aided the price decline, they said.
“The (gold) market runs on perception and it runs on emotion, and today the emotion got the better of it,” said Peter Cardillo, director of research for Westfalia Investments, a New York brokerage house.
Cardillo said he doubted that the Soviets would be so foolish as to succumb to uncontrolled gold sales because they are sophisticated traders who realize that “you don’t depress an asset that you desperately need to support your finances.”
Where gold prices are heading is a source of constant speculation, and many market watchers are not optimistic.
Weighing in on the upbeat side was Edmund Serfaty, portfolio manager of United Services Gold Shares, a San Antonio-based gold mutual fund. “Technically, the picture looks pretty bleak for gold, but I’m pretty optimistic . . . (that) the fall should bring some rally for gold and gold assets.”
But most observers interviewed Wednesday said they expected the market to trudge along with few gains and slight losses. And some, noting that the important $350 floor had been breached, predicted more down days that could take gold as low as the $310-to-$325 range.
“I’m not impressed by a $4 decline,” said John Nadler, a precious metals consultant at BankAmerica in San Francisco who thinks the market is nearing bottom. “It’s not the end of the world by any means.”
For many gold mines, the precious metal costs $325 an ounce to produce, he said, “so how low can it go?”
For the past two years, gold has been caught in a bear market that is a far cry from the heady 1980s, when the precious metal topped $800 an ounce. The traditional hedge against inflation has had little inflation to hedge against, and many other investments have become available to buyers.
“I think this has really shaken the last of the bulls out of the gold market,” said Judith Fleishner, an assistant vice president for Dean Witter Reynolds. “Unless there’s a real need for jewelry, gold doesn’t mean much anymore. The smart professional traders go to where they can make money, and that’s the currency and Eurodollar markets.”
Metals consultant Bruce L. Kaplan said the gold market infrastructure has collapsed as dealers across the country have closed their doors and investors have lost interest in buying gold--particularly physical gold, such as coins and bullion, rather than gold futures contracts--even at these depressed prices.
“The people in the gold business are numb,” Kaplan said. “They remind me of a rabbit in the middle of the road with the headlights bearing down on them.”
After the Gold Rush Gold prices tumbled to their lowest level in five years on Wednesday,dogged by reports that the cash-starved Soviet Union may be forced to draw heavily on its gold reserves to finance imports of grain and other goods. A look at the closing spot futures price for one ounce of gold on the New York Commodity Exchange on the last day of each quarter. Spot gold prices by quarter (in dollars) Wednesday’s close: $345.40
