Gold mimics platinum’s fall, but holds above $385 level

Gold prices tumbled more than 12% from an October high of $442(US) p er oz slipping below the psychologically important $400- level for the first time since August, but the afternoon London price fix never fell below $390 preserving a long-term uptrend.

A stronger dollar and a reduction of near-term inflationary expectations were at work in the gold price decline, but the overriding factor appears to be gold’s recent tendency to mimic platinum’s price swings albeit on a less dramatic scale.

Platinum fell more than 20% to $485 from its October high of $610. During the past week alone, platinum lost $49.

When platinum broke through the $520-level it triggered all sorts of sell orders,” says one of the precious metals traders at Guardian Trust.

Even so, platinum’s major uptrend is still intact as long as it stays over $480 she says.

Reduced U.S. car sales and speculation that South Africa’s platinum production in 1986 will be greater than expected have fuelled the downturn in platinum prices. Many analysts say the high degree of speculation as the volatile metal commodity rose dramatically from near the $300-mark earlier this year made it ripe for such a downward correction.

Platinum’s greatest use is in catalytic convertors in automobiles. South Africa is by far the world’s greatest source of platinum producing about 80% of the world’s supply. Concern about South African supplies — particularly as a result of a strike in January at Impala Platinum, a major south African platinum mine — spurred the bull market in the metal earlier this year.

Gold’s recent decline was further exacerbated by reports that Soviet sales w ere increasing in the Far East, Zurich and London says Frederick Demler at Drexel Burnham Lambert.

Through most of the year, Soviet selling did not live up to expectations but in the past month, their sales . . . have put a cap on every modest upmove in gold prices,” says Mr Demler.

Offsetting that, however, is a decline in South African gold output. Gold production there is off 4.6% over the year ended September 30 and October’s production was 7% less than it was in October 1985.

But not only is South Africa producing less gold, its central bank is trying to replenish its stocks, further tightening supplies on the open market. South Africa’s Reserve Bank figures show that its gold holdings rose to 4.5 million oz in September from 3.9 million oz in August.

Other bullish factors point to a continuation of gold’s long-term uptrend, established during 1986. Analysts at Sharps Pixley, London- based bullion brokers, say fundamental analysis indicates that the strengthening U.S. dollar is an anomaly and that the 19-month downtrend in the U.S. dollar’s value will continue.

The declining U.S. dollar has been one of the main reasons for gold’s price increase over the past year.