British gold sale sends prices below 20-year low

Tom Gardner

Thursday, May 27, 1999 | 2:58 a.m.

RENO, Nev. - The news just gets worse for Nevada's mining industry. Gold prices dropped below $270 an ounce today for the first time in more than 20 years.

That continues a downward spiral that began when the Bank of England said earlier this month it plans to sell more than half of its stash of 715 metric tons of the metal.

"I think it caught everybody off guard," University of Nevada, Reno economist John Dobra said. "Nobody had talked about Britain. That really was what rocked the market."

Dobra, director of the school's natural resources mining institute, said the May 7 decision to sell 415 metric tons may have done more damage than any actual sale.

"In all of these markets an announcement effect has an immediate impact," he said. "If they do decide to sell, it could have some additional impact, but I think the worst has been done."

Gold closed in London today at $268.80 bid per troy ounce, down from $269.60 on Wednesday and the lowest price since May 24, 1979.

Wednesday's closing price on the New York Mercantile Exchange was $269.40, off $1.30.

While Bank of London Governor Eddie George said on Tuesday that the sale was "perfectly sensible" since British reserves are too heavily weighted toward the metal, Dobra said the decision was not a certainty.

"Defending the policy of gold sales indicates that it is controversial in England and has become a bit of political issue between the Tories and Labor," he said.

"The Tories are attacking it on two issues: The sale itself and the manner in which they announced it - an open auction basically guarantees the British a lower price than if they'd gone out like other people and secretly sold it," he said.