Gold Tag Down On South Korea Sales Reports

Gold headed lower on Tuesday after news that South Korea had collected 161 tonne intended for distress sales but the focus of the market was the continued strength in silver, dealers said.

Gold fixed at $299.50 an ounce in the morning, down from Monday afternoon's $301.50, after an overnight rise to $303 gave way amid Asian and European selling.

News that campaigns by South Korean banks had gathered 161 tonne of gold worth more than $1.5 billion from private citizens nudged the spot price in the direction it was already heading.

The metal was last at $300.20/$300.70, versus its Monday London close of $301.90/$302.40.

 

It's taken me a little by surprise. It's an amazing amount of gold, said one London dealer.

It's difficult to focus on gold today with the attention on silver, so the reaction has been pretty limited, he said.

South Korea's Housing and Commercial Bank has led the campaign to help raise foreign currency for thecash-strapped country.

The effort followed agreement on a $60-billion bailout package for South Korea's teetering economy led by the International Monetary Fund.

One trader at Tong Yang Global in South Korea said domestic interest in bullion had dried up during the campaign, which the bank intends to continue for a second-round from February 5.

Scrap gold from places like South Korea is arriving in Europe at a rate of a tonne or so per day, according to Alan Wright, chief executive Gold Fields of South Africa Ltd.

Wright told Reuters at the World Economic Forum's annual meeting in Davos on Monday that he thought gold prices had bottomed out but would remain volatile until the European Central Bank declares what gold it will hold in reserves.

Only this would remove skittishness in the market despite output cuts implemented or planned by South African producers, including his company, he said.

But South Koreans and South Africans apart, dealers' eyes were fixed on silver on Tuesday as a four-cent bid/offer spread on the spot price, as against the usual two cents, again indicated market nervousness.

The spreads are wider as the market is very illiquid, and people are reluctant to quote two-way prices, said a London dealer who saw the market as difficult to read.

Monday's silver fix showed the beginnings of a forward stretch with spot metal quoted at 625 cents compared with three-month, six-month and one-year silver at 617.95 cents, 612.45 cents and 609.15 cents respectively.

In more stable market conditions, silver forwards are in contango, with prices further out reflecting a premium for storage, insurance and finance costs for the metal, albeit with an element built in to reflect supply and demand.

In contrast, palladium lost ground in Tokyo overnight amid market talk of US fund sales, a move which spilled over into platinum, traders there said.

Platinum was last at $386/$388 an ounce, down on its previous London close of $389/$391.

Palladium was at $236/$238, down versus its close of $237.50/$239.50.