Gold, at a Near 12-Year Low, Dons a Tarnished Crown

Gold, revered for centuries as the king of investments, woke up on Friday to find another big dent in its tarnished crown.

A plunge in the price to near 12-year lows underscored deepening speculator and institutional disillusion with the yellow metal as a store of value, analysts said.

Gold bullion was already trading at 4 1/2-year lows on Thursday, when the Australian central bank announced it had sold 167 tons from its reserves over the last six months.

Speculators, bearish after months of talk of European central bank sales, turned tail and sold gold down nearly $10 an ounce, to below $325--levels unseen since 1985.

Gold in London closed Friday at $324.50 per ounce, down from Thursday’s closing price of $331.40. Gold for August delivery on the Comex had ended at $325.20 an ounce on Thursday; U.S. commodities markets were closed Friday for Independence Day.

If nation states are going to sell, they ask, why hoard?

“The perception among investors is that the short side is the right side to be on because there’s a risk premium with central banks being aggressive, not passive,” said bullion analyst Andy Smith of Union Bank of Switzerland.

The Geneva-based World Gold Council described the Australian central bank’s gold sales as “unnecessary” and lacking “sensitivity.”

“For a leading gold producer to take unnecessary actions that prejudice the well-being of a key sector of its economy suggests a lack of sensitivity to the factors impacting the market,” the council said in a statement. It said the statement was made “at the request of our members in Australia.”

A second attack on the price by speculative selling could not be ruled out, Smith said. That means a move to $300 an ounce or lower is likely, several analysts and dealers added.

Australia’s move “was a confirmation that central banks are really tempted to sell gold reserves,” said gold analyst Hans Peter Hausherr of Zurich-based Swiss Bank Corp. “Now the market is further convinced that this will go on, so prices will go still lower.”

Gold has been trending lower since a recent peak at $418 an ounce in February last year, shunned by investors who preferred to grow their money on booming Wall Street.

The slide accelerated this year on a wave of real, proposed and imagined sales from European central banks and other institutions such as the International Monetary Fund.

Central banks and other institutions hold about 35,000 tons of gold reserves, but they are increasingly considering schemes to revalue, lend or sell part of their large holdings.

The new trend to view gold just like any other asset marks a sea change since it took the throne as the ultimate store of value 5,000 years ago, when it was first used as money in Egypt.

From Lydia’s King Croesus, who minted pure gold coins around 550 BC, through the Roman Empire to the gold standard earlier this century, gold was king. But as the new millennium approaches, hot stocks, Treasury bonds and other financial instruments hold more appeal for individual investors, hedge funds and central banks alike.

“It’s a cascade effect now, a looking over of shoulders. These things aren’t done in isolation, other central banks take note, and clearly not with a view to buy but with a view to sell,” Smith said.

The fact that Australia is the world’s third-largest gold producer is particularly galling for gold bulls and domestic miners, analysts said.

“The sale broadens the sphere of central bank sellers away from Europe, where European Monetary Union considerations have at least provided an excuse for gold sales,” analyst Nick Moore of Flemings Global Mining Group said.