Gold investors await critical US$304 level

KATHLEEN KEARNEY, Reuters, Hong Kong

Physical gold offtake is forecast to remain mixed in Greater China and other parts of East Asia, with investors waiting for a major rally in the price before piling in, dealers said.

"I can't say at what price or when we'll reach it, but there will be a price at which people will feel they must buy some gold," said Yong Wing Hoe, marketing manager for precious metals at Scotia Mocatta in Singapore.

Chartists believe that price level is about US$304 an ounce.

"Gold rallies have been sustained only when it has held above $304-305," said one dealer with a bullion bank in Hong Kong.

Gold has been in a major downtrend since February 1996 when it hit a high of $409. After setting a long-term low of $251.70 on August 25, 1999, gold bullion has made only two major moves about $304 but neither was sustained.

That is because central banks continue to sell their gold reserves and gold mining companies to sell forward their future production.

Some dealers reported a pick-up in trading activity on Friday, with good two-way demand at current prices.

Spot gold was trading at $291.60/2.10 an ounce in late Asian trade on Friday, up from New York's last quoted $289.60/290.60.

"It is a good two-way market at this level. We should not ask for more than that," said the Hong Kong dealer.

While some saw gold moving up as tensions remained following the September 11 attacks on the United States, others were content to get out of a volatile market.

"This is an ideal market," the dealer said.

Greater China buyers, including some traders in China, were accumulating physical gold, concerned that air freight costs and so premiums would rise if more airlines closed down, he said.

Premiums for good delivery kilobars in the wholesale market in Hong Kong were $0.30-$0.35 an ounce, up from $0.20, the average level for the past three or four weeks,

Physical demand in Southeast Asia did not appear to be as robust.

"Everyone is really waiting on the sidelines," said Scotia's Yong. If the price did rise above $304, buying interest would grow and the herd instinct would also take hold, he added.

"But right now everyone is anticipating a big recession," Yong said.

Indonesian traders and investors were again selling gold, taking advantage of the higher prices and the fall in the value of the rupiah against the dollar, which gave a double boost to the rupiah price of gold.

With this supply inflow, gold was priced at a $0.20 discount to loco London, dealers said

Buyers paid a $0.10-$0.20 premium, they added.