Gold fluctuates as Busang effect ebbs

Gold fluctuates as Busang effect ebbs

LONDON (Reuter): Gold prices were higher in London but surrendered some of the gains racked up in New York as the effect of the uncovering of the fraudulent claims for the Busang gold deposit faded away.

London dealers returned from a three-day weekend yesterday to find the shock announcement that initial results on Bre-X Mineral Services Ltd's Busang deposit in Indonesia, originally put at 71 million ounces, were falsified on a scale "without precedent in the history of mining".

Although the fact that what was thought to be the biggest gold find ever would not come onto the market might have helped New York's rally to $344.80, dealers saw no long-term effects.

"If it (Busang) actually became active, then to finance it all sort of hedges would be put in place...and if gold wasn't really there then you would have to buy them back. But we were never that far advanced," said a London dealer.

The gold market was "too big and it has been around too long" to reel under one mine failure, he added.

Bullion fixed at $342.80 an ounce compared with Friday's fix of $339.65. At 1030 GMT spot gold was quoted at $342.50/$342.80 after reaching a high of $343.40 earlier.

But with stock markets rushing to new peaks most dealers were skeptical about a continued rally, and fears of future central bank sales were also keeping sentiment down.

"We have unfortunately got resistance levels all over the place. Before we can get excited about gold we have to go through $346 and before you get there you have $345," said one.

Further rallies might also reward the patience of some producers that had been holding back for higher gold prices.

"I think we are still very poised for a move in either direction," said the dealer.

Support seemed to be well-founded at $339.00 after several attempts to break lower, but the potential for bargain hunting could also have thinned after the market rallied from its lows.