Gold price rally 'likely to be short'

CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Gold's two-year high of $300 an ounce reached in early February is unlikely to be sustained, according to commodity analyst Poppy Liatis of Nomura Australia.

Liatis, based in Sydney, said despite recent suggestions gold might be returning to "safe haven" status, the short-term outlook was lacklustre and the current rally looked shaky.

Central bank sales were likely to be stable, but fabrication demand for gold remained weak, she said in a commodity report.

Liatis said the market was sensitive to suggestions that Germany's Bundesbank would consider selling some of its estimated 3500 tonnes of gold reserves after a sales limitation agreement expires in 2004.

In September 1999, 15 European central banks agreed to limit their combined sales over five years to 2000 tonnes, or 400 tonnes a year.

'Enronitis', Japanese deadline

Liatis said the market's reasoning for gold staying around $290-$300 an ounce for most of February was linked to "Enronitis" -- investors worried about suspect accounting practises switching from equities to gold -- and Japanese buying ahead of an impending deadline.

The Japanese government will withdraw its guarantee of bank deposits from April 1. Market observers say this is causing uncertainty among Japanese investors over the safety of their deposits, prompting them to buy gold instead.

Liatis said gold had risen in price after global economic shocks such as the LTCM crisis, but had sold off soon after.

During the 1991 Gulf War, gold touched $420 an ounce -- well below its high of $850 during the 1980 Iranian revolution -- then gradually slipped down to almost $250 in 1999.

In Hong Kong Tuesday, gold opened at $296.75, down $2.30 from its previous close.

"We do not believe the recent spike is supported by fundamentals and hence the current rally is likely to be shortlived," Liatis noted in her report.

Forecast $285 in 2002

Her comments came as Australia's commodity forecaster ABARE (Australian Bureau of Agricultural and Resource Economics) predicted Tuesday an average gold price of $285 an ounce in 2002 and $289 in 2003.

Australia is one of the world's largest gold producers, and gold is the country's third largest commodity export.

ABARE said it expected sales of just under $3 billion in the year to June 2002 and a 9 percent rise in 2003 to about $3.22 billion.

The U.S. is the world's largest holder of gold reserves, with an estimated 8000 tonnes worth about $70 billion.