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Gold gives up nearly all 1996 rally gains

LONDON: Gold gave up the last of its 1996 gains on Friday as a speculator sell-off dragged it back down to where it began a rally in January.

Dealers said the bullion market now looked ready to sink back into the torpor that characterized it throughout 1995.

"There is going to be quite a lot of disillusion floating around. But I don't see it crashing to new lows," Tony Warwick-Ching, analyst with consultants CRU International, said on Friday.

"If we're back into last year's trading range, then volatility will fade," he added.

A series of sell-offs have pushed prices within a whisker of the opening level on January 2, when U.S. investment funds piled into the market and set off the rally.

Before this, the market had languished below the psychological $400 level for two years.

Prices shot up to six-year highs of around $418 per ounce by early February, but when momentum stalled the funds cashed in their gains and the market retreated.

On Friday morning, bullion fixed at $389.90 per ounce, down 60 cents from Wednesday afternoon and the lowest level since January 2.

All signs point to further weakness in gold, analysts said.

Commodity markets pushing higher, such as grains and copper, may be attracting hot, speculative money from gold.

Expected falls in what were regarded as overheated U.S. stock markets have not materialised, so gold's traditional role as a store of value has not come into play.

A surprise cut in interest rates by Germany's Bundesbank on Wednesday caused hardly a flicker in the bullion market.

Lower interest rates are regarded as helpful for the precious metals since they reduce holding costs.

"It's disappointing the round of interest rate cuts which is quite clearly underway in Europe has given nothing to gold," Warwick-Ching said.

Demand from India, the world largest gold consumer, other Far Eastern countries and jewellery-makers should increase as prices slide, but it is unclear whether this will be enough to prop up gold prices.

Dealers in Hong Kong said on Friday that an expected increase in jewellery demand had failed to occur.

"Maybe gold supplies are not that tight," one said.

The other precious metals were also soggy on Friday and were adding to the gloomy general sentiment.

Fund selling has been seen this week in silver, which has given up 25 cents this week, dealers said. At midday, it was quoted four cents down at $5.27 per ounce.

Platinum fell below the key $400 level on Thursday and was quoted slightly easier on Friday at $399.25 per ounce. Palladium's losses were not so severe. It was quoted a touch firmer at $135.75 per ounce.-Reuter