The selling interest implies that physical market factors will not support gold prices.

G. Chandrashekhar

Mumbai, July 28

CONTRARY to initial expectations, the sale of gold by European central banks has been brisk this year. Out of the committed sale of a maximum of 500 tonnes of gold agreed to by European central banks last September, 459 tonnes have already been sold by the signatories as of July 15, leaving very little to be sold next two months.

In September 2004, European central banks agreed to sell 2,500 tonnes of gold over a five-year period with a limit of 500 tonnes each year. At that time, not many believed that sales would come anywhere near the annual target.

"This evident selling interest among central banks, together with weak fundamentals and gold-specific factors turning less positive in 2005, implies that physical market factors will not support gold prices," commented Mr Kamal Naqvi, precious metals analyst with Barclays Capital.

With the link between gold and the dollar becoming increasingly re-established, movements of gold will predominantly be influenced by currency movements in near term, the expert asserted.

In recent times, Spain which joined the European central bank gold agreement as a seller in the second quarter of 2005 sold 7.1 tonnes of gold and Germany sold a modest 3.4 tonnes for coins.

This was in addition to last week's report that Portugal had sold 35 tonnes with France continuing its constant sales.

(This article was published in the Business Line print edition dated July 29, 2005)
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