UK sale slams Indian gold prices

LONDON/MUMBAI, JULY 7: The UK move to auction gold reserves pulled down prices on the Bombay bullion market on Wednesday. Gold prices nos...

LONDON/MUMBAI, JULY 7: The UK move to auction gold reserves pulled down prices on the Bombay bullion market on Wednesday. Gold prices nosedived by Rs 70 per ten gram due to the sharp fall in the international prices which was triggered by the gold auction by the Bank of England (BOE). Silver also fell sharply by Rs 160 a kg on weak global advices.

Standard gold, after a weak start at Rs 4075, fell further towards the fag end and finished at Rs 4070, showing a big fall of Rs 70 over the previous close of Rs 4140 in Mumbai. 22-carat gold was nominally quoted sharply lower at Rs 3765 from the previous level of Rs 3830. Ten-tola gold bar (.999 purity) plummeted by Rs 900 and closed at Rs 47,600 as against yesterday’s close of Rs 48,500.

The Indian bullion market was hit after the price of gold slumped to the lowest point in 20 years today after Britain had launched controversial bullion sales with an auction that drew plenty of bidders looking for a bargain, but criticised by major producers worldwide. Theprice fell below $ 258 an ounce for the first time since May 1979 after Britain had sold 25 tonnes of the metal in the first auction of a four-year programme to convert more than half of its gold reserves into foreign currencies.

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“The prices of gold and silver in India are influenced by the international prices. This is because gold is imported to India in a big scale. India is one the largest importers of gold in the world,” said a gold dealer in Mumbai. The Bank of England managed to place the gold, equal to about 804,000 ounces, at an allotment price of $ 261.20, and noted keen interest in the auction, which was five times oversubscribed. But analysts said that most of the offers had been pitched at far below the final settlement price, and pointed to the slumping gold price as evidence.

The move has invited condemnation from major producers of gold worldwide. Anglogold, in Johannesburg, the world’s biggest gold producer, yesterday, condemned the Bank of England’s first pre-announced auction of goldreserves, calling it naive, dangerous and disruptive.

In Boksburg, East Rand Proprietary Mines Ltd, one of South Africa’s oldest gold mines, said it was going out of business due to declining gold prices and the government’s refusal to grant any more bailouts. However, Bank of England has been tight-lipped about the auction. And its spokeswoman declined to comment on the outcome and on the range of bids placed.

Investors have been nervously awaiting the results of auction ever since Britain stunned the market in May by announcing its radical plans to sell 415 tonnes of its 715-tonne gold stock and channel the proceeds into yen, dollars and euros. Gold prices have since slumped by about 10 per cent, ironically reducing the yield that the Bank of England could expect from auction. Ultimately the Bank of England raised about $ 210 million from the sale. The bank said it wanted to restructure its reserves into more flexible instruments.