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Monday, October 27, 1997


Gold prices fall to twelve-year low

Swiss plan to sell off more than half their gold reserves

There has been a sharp drop in the price of gold.

Gold bullion dropped $16 an ounce to $308 an ounce - its lowest level for 12 years in US trading.

The fall followed confirmation that Switzerland is considering selling 1,400 tons of bullion early in the next century pending the outcome of a referendum to be held in two years' time.

These sales will be in addition to the 400 tons of gold the country already plans to sell to finance a holocaust victims' fund - move announced earlier this year.

The Swiss announcement left speculators jittery. At the COMEX in New York, gold prices tumbled 5% to their lowest levels since 1985 in record daily trading volume.

Gold for December delivery ended down $16.10 at $308.60 an ounce on volume estimated at 130,000 contracts. The previous busiest trading day in gold was 127,439 contracts that changed hands on November 28, 1995.

[ image: Gold prices fell along with world stock markets]
Gold prices fell along with world stock markets
In the bullion market, spot gold prices ended at $308.50 an ounce, the lowest level since December 1985.

"The slide resulted from two factors: the Asian financial markets crisis and news the Swiss plan to sell about half their gold reserves if the idea can get referendum approval," said Merrill Lynch commodities research director Bill O'Neill.

"The market was already bearish as gold had failed to benefit from the slump in stock markets around the world yesterday, following the crisis in Asian financial markets recently," he said.

"And then today the news the Swiss may sell 1,400 tons of gold, or about two-and-a-half times South Africa's annual production, means other central banks could now pick up the time frame for selling some of their gold," Mr O'Neill said.

In inflation-adjusted terms, gold prices are at their lowest levels since the 1970s, analysts said.

A panel appointed by the Swiss finance ministry and the Swiss National Bank proposed selling 1,400 tons of gold from their reserve of 2,600 tons.

The proposal, which would have to be approved by a nationwide referendum set for 1999, is part of a plan to overhaul the Swiss constitution to reduce the amount of gold that must be held by law to back the Swiss franc.

Switzerland is the last developed country to insist by law on a gold backing for its currency. The plan proposes reducing the backing to 25%t of currency from 40%.

An earlier plan announced in March this year called for the sale of about 400 tons to finance a Holocaust victims fund. But the new proposal would sell about 1,400 tons in total, about half a year's output from all the world's gold mines, leaving Swiss gold reserves at about 1,190 tons.


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