The future of money: gold or the fires

Section:

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=3476385

NEW YORK, Sept. 19 (Reuters) -- COMEX gold surged
on Friday amid dollar weakness and anticipation of a
renewal of the Washington Agreement curbing central
bank sales at this weekend's International Monetary
Fund Meeting in Dubai.

Minutes after New York metals trade wrapped up for
the weekend, a Group of Seven official helped lay to
rest weeks of speculation, saying G7 central bankers
will begin talks on a new five-year gold deal on
Saturday, adding that the new agreement could raise
the limits for official sales incrementally.

December gold ended up $5.20 at $382.90 an ounce.
It traded from $376.20 to $384.50, 30 cents below the
seven-month high hit last week, bolstered by hopes
that central banks would decide to maintain the level
of transparency on their gold market activities attained
in the original 1999 agreement.

"It's high up on the topic list for the gold market, so of
course they are going to discuss it," Bernard Hunter, a
vice president at bullion dealer ScotiaMocatta in
Toronto, said after the close.

"The market is split on this, whether there is going to
be a formal announcement or not. I expect it might be
a little premature," he added.

Spot bullion was last quoted at $381.60/2.30, up from
$376.35/7.05 at Thursday's close. London bullion
dealers fixed the afternoon spot reference price at
$379.75.

Gold has been tracking the euro's ups and downs a
gainst the dollar. It got extra support Friday as the
dollar/yen fell to a 2-1/2 year low. A weak greenback
makes dollar-priced gold more affordable in foreign
currencies.

But the market dwelt on whether the Washington
Agreement, which limited European government sales
to 400 tonnes a year through September 2004, would
be rolled over.

While European finance officials suggested this week
that gold will be discussed on the sidelines of the Dubai
meeting, Friday's statement by the unnamed G7 official
was the first suggesting that the sales limits could be
increased, if only in stages, as some had been betting.

The original pact helped lift gold from 20-year lows, by
making central bank sales more predictable.

"Economic data and swings in the currency market
continue to give the market short-term direction, but
the growing focus seems to be the Central Bank Gold
Agreement with a renewal of the policy likely to give
gold a boost despite the large long position held by
the specs/funds," analyst James Moore of
TheBullionDesk.com wrote Friday.

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