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Comex gold skids to 16-wk low on French sales fear

NEW YORK: New York gold futures dropped to a 16-week low on Monday amid heavy fund selling triggered by jitters that France could someday join the ranks of major sellers of central bank gold, dealers said.

Speculators were spooked out of stale long positions by an article Sunday in French newspaper Le Monde that said the head of the finance committee of the National Assembly had proposed that Bank of France gold reserves be tapped to cover future shortfalls in the pension system.

"All the funds are long in New York," said one New York metals trader. "The fact that they are even talking about it is pretty scary."

At the Comex division of the New York Mercantile Exchange, benchmark gold for April delivery fell $4.60, about 1.6 percent, to $280.50 an ounce. The contract broke out of a 10-day range from a high of $285.40, touching $280.20, its lowest since December 6, when it hit a low at $278.50.

Spot bullion was quoted late at $279.80/0.60, down from Friday's New York close at $284.80/5.30 and London's late fix at $284.15.

commitments of traders data released on Friday showed speculators as of last Tuesday were net long 14,933 Comex contracts, equal to about 1.5 million ounces or 46 tonnes. That was down slightly from 18,671 in the previous biweekly report.

In the unsourced story, Le Monde said finance committee president Henri Emmanuelli had floated the idea of using French gold reserves -- about 3,184 tonnes at the end of 1998 according to industry consultants Gold Fields Mineral Services -- to Prime Minister Lionel Jospin.

The specter of central bank sales has been the bane of the bullion trade, driving spot gold to a 20-year low of $251.70 an ounce last August but gradually moving to the back burner as a slew of official sales announcements were priced in.

The Le Monde report came less than a week after the market absorbed the Bank of England's fifth auction of 25-tonnes of reserve metal, under a plan to cut UK stockpiles 58 percent to 300 tonnes.

The UK has diarized another 150 tonnes of auctions over the next year. By the time of Britain's next sale in May, Switzerland may have started to sell the 1,300 tonnes it intends to give the market, halving its reserves.

But near-term prospects for sizeable French sales seem remote because France, along with Britain and Switzerland, was one of the 15 parties to the September 26 Washington Agreement to cap annual European central bank gold sales at 400 tonnes for five years, for a total of 2,000 tonnes over the five years.

Short covering and renewed bullishness sent gold prices surging from near $272 to $338 an ounce in the week after that announcement.

When the Dutch quota of 100 tonnes a year is added to known sales by Britain and the yet-to-be-scheduled Swiss National Bank sales, there seems to be little room to wiggle Bank of France disposals into the calculation.

"It's gold's old problem -- potentially more supply to the market and the market basically doesn't want to talk about more supply," said George Parrill, a director at ScotiaMocatta.

"It's digested the 2,000 tonnes, or the 400 tonnes the 15 European central banks agreed to last year, France included. So we'll just have to see if there's more follow up to the story," Parrill said.

May silver fell 2.8 cents to $5.12, in a range of $5.105 to $5.155. Spot silver was last at $5.08/10, off Friday's close at $5.09/12 and London's $5.09 fix.

Nymex April platinum fell $3.20 an ounce to $475.50 and June palladium lost $3.25 to $614.75. -Reuters