ALAN FINLAY, Johannesburg | Wednesday 12.30pm.
SPECULATORS preying on a struggling gold price over the past year have been caught with their pants down, with one analyst estimating the over-the-counter market may be as much as 3000 to 4000 tons short.
“There’s a scramble to buy back gold,” said Fedsure’s Nick Goodwin, who predicts the price may cap as high as $350 to the ounce. “It’s a volatile market and that attracts more speculators, which means more foreigners. Nobody touched gold before because it was dead meat,” said Standard and Poor’s Ray Brand.
Bullion has rocketed for the third day running on Wednesday, and at 12.30pm had burst through the $310 mark, soaring at $317.50 to the ounce.
Analysts said speculators who borrowed gold at low interest rates from central banks and invested in the Dow Jones now find themselves short. “They’re stuck in gold,” said Brand. “There’s basically a bear squeeze in the market. They’ve sold more than they own. Everyone knows that, and they’ve started bidding like hell.”
The three day feeding frenzy follows the European Central Bank’s unexpected announcement in Washington on Sunday that it will limit its bullion auctions to 400-tons a year over the next five years and that it will not expand gold leasing over that period.
“Central banks are tired of being blamed for the weak gold price,” said Goodwin. “It was a conscious decision to bring certainty back into the market” he said, pointing out that the Bank of England and Swiss Bank, previously two dark horses, are bound by the announcement.
The yellow metal began gaining ground after last Tuesday’s Bank of England auction where producers bought up most of the 25-tons released into the market.
“It was a political decision by the producers,” said Brand, adding that ahead of Y2K investors are scared to be holding paper and electronic assets, prefering something they “can put under their bed.”
But analysts disagree about the heights gold will soar to.
Whereas PLJ Financial Service’s Dawie Roodt predicts we’re about to see the end of big one day corrections, Goodwin says jewellers, who buy up a substantial amount of the yellow metal, will only pull out of the market at about $350 to the ounce. “When they’re gone, it’ll reduce the demand and gold will settle,” he said.
“It’ll probably fall back before the end of the week,” said Brand, “but at the moment it’s a speculator’s paradise and good news for South Africa. Everyone loves a winner.”