Gold price hits US$360 on new estimates from Soviets

For the first time since mid-August, evidence that the Soviet Union is harboring much less gold than western analysts had been estimating has pushed the precious metal above US$360 per oz.

Analysts agree that the latest rally is primarily due to comments by Soviet economist Grigori Yavlinski, who stated about two weeks ago that the Soviet Union has only 240 tonnes in reserve.

As the U.S. Central Intelligence Agency had estimated Soviet reserves at more than 2,000 tons, the fear that the Soviet states will flood the market with vast quantities of gold to pay for their independence has largely been dispelled. Such fears were responsible for driving the gold price as low as US$343.50 in mid-September.

While the Union Bank of Switzerland estimates that current reserves in all Soviet states may lie in the range of 800-1,800 tonnes, Vancouver analyst Martin Murenbeeld believes the true figure may be closer to 725 tonnes. However, both agree that a pressing need for hard cash to pay for economic renewal will persuade Soviet banks to retain gold as loan collateral for debt service obligations, instead of selling it.

The USSR will also need most of its gold reserves to bolster its borrowing power within the International Monetary Fund if, as expected, it becomes a full member next year, according to Murenbeeld. Currently granted associate status by the International Monetary Fund (IMF), the USSR could leverage its gold eight times to support as much as $65-70 billion of debt, he says. Meanwhile, gold bugs are anticipating further price increases once the world recognizes that sales from the Soviet Union may drop to as little as 150 tonnes next year from around 700 tonnes in 1989.

“That should have an impact of anywhere between US$40-50 an oz. on the price of gold,” says Pierre Lassonde, president of the gold division at Toronto-based investment council Beutel Goodman & Co.

Although gold producers are expected to hedge against fluctuating prices by selling forward as the price goes up, Lassonde expects the gold price to move toward US$400 per oz.