Gold Continues to Languish as Prices Hit a 15-Month Low

Gold slid to fresh 15-month lows in New York on Tuesday, continuing a poor start to what some analysts say will be another dismal year for the metal.

January gold futures fell 60 cents to $263.30 per troy ounce on the Comex, the lowest price since late September 1999.

Gold Fields Mineral Services, a consulting company in London, issued a report last week saying that gold probably will languish near 20-year lows in 2001 as central banks continue to shed bullion and as jewelry demand remains weak.

Prices will average about $274 an ounce, trading between $260 and $290, after averaging $279 last year, Gold Fields said.

Although a drop in the dollar has made gold cheaper since November for buyers using other currencies, some gold investors have switched to stocks and bonds in search of better returns, analysts say. Central banks also sold more of their gold reserves or lent them to speculators, increasing available supplies.

“There’s no sign that either the weaker dollar or crashing stock markets have prompted any move into gold by investors,” said Gold Fields Managing Director Philip Klapwijk.

Even though the euro currency has rebounded 7% against the dollar since the beginning of December, gold prices in New York have declined more than 2% in the same period. Gold is down by more than a third since 1996, and reached a 20-year low of $253.20 an ounce in July 1999.

Central banks sold about 490 metric tons of gold last year, a 17% increase from 1999, Gold Fields said. There’s “little chance” of a reduction in official sales this year, it said, as many central bankers continue to shift reserves from gold to government bonds.

Central bank sales in 2000 offset a drop in supply from producers, who cut back on sales of metal they had yet to mine. Such sales allow them to lock in prices and protect against declines, and that kind of hedging activity probably will pick up this year, Gold Fields said.

Supplies from central bank vaults come on top of newly mined metal. Global production was little changed at 2,568 tons last year, compared with 2,570 tons in 1999. Mine output is expected to rise slightly in the first half of this year, Gold Fields said.

Other reasons for gold’s lackluster performance include “the weakness of fabrication demand,” meaning jewelry, the company said.

World fabrication demand fell 0.1% last year to 3,743 tons, as demand for gold jewelry declined both in India, the world’s biggest buyer, and in Italy, Europe’s largest.

What’s more, investors in the United States and Europe sold as much as 100 tons of gold bars and coins.

“Spending priorities of consumers have shifted,” Klapwijk said. “Gold jewelry simply isn’t what it used to be.”