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NY gold holds up after final Bank of England sale, $300/oz seen

NEW YORK, March 5 (Reuters) -- COMEX gold gained
ground despite more supply laid on the market by the
Bank of England's latest and last auction of gold
reserves, and traders said they now expect gold to be
able to climb higher.

Immediately following the bank's 20-tonne gold sale,
there was almost no reaction in the London bullion
market, which was said to have been mildly
disappointed in the results.

But the auction was oversubscribed by a healthy 3.7
times compared with 1.4 times at the prior auction in
January. The sale price was $296.50, off 10 cents
from the London morning fixing, though the highest
of any of the bank's 17 gold sales.

"I don't see it as disappointing. I think there was a lot
of anticipation that producers might have been
buyers, buying back hedges on the auction, and
that we would see a greater amount of
oversubscription than we saw," said a COMEX
trader.

"Everyone used a rough gauge of 4.0 times
oversubscription as a measure for a good auction.
So that was disappointing. But there are no more
auctions looming over us," he added.

Bottom line, he said, "The price of gold is holding
up, because the auction did not knock it down."

COMEX April gold traded $1.40 higher at $298.50
an ounce, below its early peak of $299.40.

New York traders said they saw scope to $300 an
ounce, possibly even on Tuesday. Others said they
see $302 as a next target some time this week.

Spot gold reached up to $297.90/8.40 an ounce,
from $296.60/7.10 late Monday. London's fix was
set at $297.80.

Tuesday's auction completed the Bank of
England's intention to reduce gold reserves from
715 tonnes to the remaining 320 tonnes after a series
of 17 auctions begun in July 1999.

The sales were estimated to have raised $3.3 billion
for the UK treasury. At the current seven percent of
gross reserves, the UK's gold holdings is the lowest
among leading nations of the European union, the
World Gold Council said.

Fund buyers in London and New York markets
jumped in to prop gold up after the auction, though it
fell short of the critical $300 level.

Silver this morning gave back some of the extensive
ground it took in recent sessions, but then turned
around to reassert its strength and ride gold's
coattails higher.

Heavy borrowing has tightened six-month silver
lease rates over the last few days, and in turn has
driven up spot and COMEX silver prices.

Six-month lending rates stood at -0.880 percent
first thing Tuesday morning, compared with
-0.647 percent a week ago.

A London trader said he thought the increased
borrowing was due to improved economic
prospects, though it was difficult to know for sure
why silver borrowing had picked up recently.

A New York chartist has pointed to a gap on the
May silver chart that has yet to be filled at $4.68
an ounce as a potential near-term objective.

Silver started Tuesday lower, but then regained
its footing with May silver jumping 3.30 cents to
$4.6350 an ounce. The range ran $4.565 to $4.635.

Spot silver changed hands at $4.63/65 on
Tuesday, up from Monday's $4.60/62 close.
Tuesday's fix was off at $4.57.

Platinum prices did not hold up on the NYMEX
on Tuesday, though after the precipitous run up
over the last few sessions, traders said they were
not surprised to see some of it given back. They
noted, however, that platinum still stood well above
the $500 an ounce level.

NYMEX April platinum edged down $4.0 to $508
an ounce on Tuesday. A day earlier, platinum hit
a contract high at $514. Spot platinum was quoted
lower at $505/510.

In Asia overnight, players continued to buy platinum
on the TOCOM, but they became cautious about
bidding the metal up to far too fast following a surge
to seven-month highs on Monday.

Just the same, a technician in New York pointed out
that several key technical tests had been satisfied
on the platinum chart over the past few days.

For example, a chart gap set last July when
platinum was tumbling to long-term lows had
been filled on the way back up on Monday.
Similarly, several resistance levels were
ruptured and toppled, and argued for a continued
climb higher.

June palladium eased $5.50 to $367 an ounce.
Spot palladium was quoted $5 lower at $365/375
an ounce.