Today’s auction of British gold was a success, as these sales go. The price of $264.30 was actually some 50c over both the AM and PM London gold fixes, and bids were received for some 2,670,000 ounces, or 3.3 times the amount available.

This strong demand in a weak market bodes well for gold. “It was mostly physical demand and short covering, especially when you consider that the COMEX speculative short position is around 2.3 million ounces,” John Reade, an analyst at UBS Warburg was quoted by Reuters News today, “When the market’s short, you get good subscription levels at the auction.”

Since the advent in July of 1999 of these every-other-month sales of British gold reserves by the Bank of England, some 225 tons of gold have been sold. This represents about $1.9 Billion in gold put on the market since that time. As a comparison, during the same period, something like 3,000 tons has been mined worldwide at current production rates, or a total of about $25 Billion dollars in gold at today’s prices.

England’s emptying of its Treasury vaults has contributed an additional 7.5% to the supply of new gold coming onto the markets. This controversial series of sales has had a depressing effect on gold prices. 200 more tons are scheduled to be sold by England over the next 16 months.

Who were the buyers at this auction? Most likely, holders of euros were a big factor. “The movement in the euro (down some 25% since its inception last year. – ed.) has put European gold at a lower level and made it more attractive to buy,” Reuters quotes Kevin Crisp of CSFB London, “We’re around 309 (euros an ounce) instead of 320 and higher, so maybe more interest came from that constituency.”

The next 25-ton sale will be January 23, 2001.