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314-955-3050(March 23, 2000) METALS: The Bank of England held its fifth gold auction on Tuesday. The table illustrates the results and compares them to those from the previous sales. We regard the low subscription level as having little consequence, because bidders who were hoping to pick up bargains at previous auctions have probably abandoned such ideas at this point. The low scaling factor indicates the number of bidders at the lowest accepted price were quite numerous. These results presented no surprises, so the market reacted little to them.
Date Allotted Price Subscription Level Scaling Factor July 6, 1999 $261.00 5.2 times 91.82% September 21, 1999 $255.75 8.0 times 58.53% November 29, 1999 $293.50 2.1 times 47.94% January 25, 2000 $289.50 4.3 times 56.47% March 21, 2000 $285.25 3.0 times 46.99% Other central banks have also caught the attention of gold traders lately. The latest IMF report on central bank gold holdings showed Brazil's stockpile had declined by approximately 36 tonnes during December. Officials there denied selling the gold, saying the drop resulted from gold deliveries fulfilling previous sales and other transactions. Nevertheless, the drop again demonstrated the lack of regard central bankers now hold toward gold.
Such ideas were reinforced by a recent statement from the Swiss National Bank. In it officials set April 20 as the official cutoff date for presentation of a citizen petition contesting the government's plan to sell 1,300 tonnes of gold bullion over the next five years. The wire services report no organized opposition at this point, which makes the filing of the required 50,000 names very unlikely. Traders are apparently expecting the sale to go forward, so the announcement had little price impact. Still, the prospect of persistent central bank selling is continuing to damage the gold outlook. We remain moderately bearish.
Officials with the Tokyo Commodity Exchanged (TOCOM) decided last week to keep the prices of all 2000 TOCOM palladium contracts frozen at recent levels for the balance of the year. The only trades allowed will be those that liquidate previously established positions. Speculators are even banned from opening new positions in the February 2001 contract at this point. That action has also damaged interest in platinum group metal (PGM) futures in New York. With no perceptible action occurring on the Russia-Japan PGM trade front, the outlook is clouded at best. We continue to recommend against trading palladium. While we remain sidelined from the platinum market as well, due in part to the potential influence of the palladium market, we remain moderately bullish. We still believe platinum prices will again top $500.0 this spring.
News concerning silver remains scarce, thereby allowing technical support in the 500-505 range to limit moves to the downside. Underlying interest from investors seems to be quite good at current levels. However, they have consistently proved unable to drive prices above recent highs. We suspect unexpected fundamental news or an event will be required to push silver out of its recent range.
Dan Vaught
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