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Comex gold gives ground, but demand perky after auction

NEW YORK: Comex gold fell Wednesday, failing to capitalise on the surprise rally after Britain's disappointing fifth gold sale on Tuesday, dealers said.

"Bottom-line, the auction results weren't great when you look at the price and it was oversubscribed less than the other auctions," said David Rinehimer, head of commodities research at Salomon Smith Barney. "The lack of follow through to the upside just brought some sell pressure to market today."

April gold ended down $2.10 at $288.30 an ounce, moving from $291.10 to $288.10. Spot bullion was quoted late at $287.50/8.50, around the late fix at $287.80 but down from Tuesday's New York close at $289.50/0.25.

Dealers said pent up physical demand should hold the bullion market above the recent low at $282.65. But it is an open question whether the healthy scale-down buying noted recently out of India and the Far East will offset future official sector sales and any producer hedging, analysts said.

For now the offtake has neutralised bearishness about the lukewarm participation in the UK sale, which was oversubscribed just 3.0 times and where bullion was alloted at $285.25, less than the spot price prevailing just before the bidding began.

The bid cover at the previous sale on Jan 25 was 4.3 times, and gold was awarded at $289.50. Compared to that price and the Feb 7 high of $319, bullion looked cheap on Tuesday.

"I think the most encouraging thing was the physical buying moving up with the market," said Ian MacDonald, manager of bullion trade at Commerzbank.

"This is the first time we've seen it move up...normally they leave orders way below the market and if the market goes $10 higher they just sit there and wait," MacDonald said.

Analysts said Britain's gold auctions, which drove gold down to 20-year lows last August, are having a declining impact on the bullion market as the sales progress.

The 900-tonne a day bullion market can easily swallow 25 tonnes of official gold once every two months. A big problem was the psychological impact of Britain's public sales.

The Dutch central bank, shunning the auction method, discretely disposed of 100 tonnes of gold in less than three months after it announced in early December plans to sell 300 tonnes over five years.

Tuesday's auction concluded the first part of Britain's programme to reduce gold reserves to 300 tonnes from 715 tonnes.

Some 125 tonnes of gold, or 30 percent of the total 415 tonnes of UK reserves to be sold, have now been moved out of the Bank of England vaults via the regular bimothly auctions.

Starting May 23, 150 more tonnes will be auctioned in six more 25-tonnes sales running to March 2001.

But by Britain's next sale, Switzerland may have started to put on the block some of the 1,300 tonnes it plans to sell, raising the possibility of renewed market indigestion.

Elsewhere, May silver rose 0.7 cent to $5.165 an ounce, moving from $5.15 to $5.21. Spot silver was last quoted at $5.11/13, up from $5.10/12 at the previous close, having fixed at $5.13.

Nymex April platinum rose $2.20 to $493.80 an ounce, having scored a one-month high at $499 in the morning in very illiquid trade. June palladium fell $2.95 to $652.05 an ounce.

The undersupplied platinum group metals market was still awaiting signs that long-delayed Russian shipments had arrived in the West, where record automotive demand helped propel palladium to all-time highs over $800 an ounce last month.-Reuters