Possible Gold Sell-Off Sinks Futures Prices

Gold futures prices Tuesday suffered their biggest drop in eight months after the head of Germany’s central bank said the second-largest holder of the metal might sell some of its reserves.

The Bundesbank may slowly sell some gold and reinvest the proceeds in income-producing assets such as bonds, President Ernst Welteke said in an interview with Bloomberg TV. He didn’t say whether the sales would be in conjunction with a September 1999 agreement by the Bundesbank and 14 other central banks to limit such sales over the following five years.

Welteke’s comment “was responsible for most of the selling” Tuesday, said Jim Steel, director of commodity research at Refco Inc. Investors were surprised, he said, because “the Bundesbank is notoriously tight-lipped on these things.”

Near-term gold futures in New York sank $5.20 to $293.20 an ounce. Gold futures had rallied to $303.50 on Feb. 8--a two-year high--as some nervous investors turned to the metal amid the stock market’s latest slide. Gold began the year at $279.

“We have significant gold reserves,” Welteke said. “I could imagine that we slowly sell some of this gold and reinvest the revenue in assets that pay interest.”

Gold slumped through the late 1990s in part because many central banks were selling reserves. Fifteen European central banks agreed in September 1999 to limit sales over the following five years. That helped halt gold’s decline after prices hit 20-year lows.