By Edmund Conway (Filed: 20/08/2004)
Gold prices hit a four-month high yesterday, after it emerged that Argentina bought 42 tonnes of bullion in the first half of the year in an effort to repair its shattered economy.
The precious metal rose $4.50 to $407 an ounce for the first time since prices dropped in mid-April. It was lifted higher by the weaker dollar, which fell almost a cent against the pound, leaving sterling worth $1.8323.
A report from the World Gold Council (WGC) - the organisation that promotes the metal - revealed that Argentina bought a significant amount of gold between January and June in order to lock its wealth into stable investments rather than bonds or equities.
Analysts said other countries may start buying gold again, reversing the worldwide central bank sell-off of the past decade. Almost all western countries have been selling their reserves in exchange for investments with a higher yield.
In Britain, the Treasury earlier this year ruled itself out of selling any more of its gold reserves for the foreseeable future, having sold off half of its store between 1999 and 2001.
Chancellor Gordon Brown sold 395 tonnes at an average price of $275 an ounce, making about £2.3 billion. Economists calculate that he would have made almost £3 billion had he waited until today.
Since Mr Brown's decision, taken at a time when gold was out of favour with investors, the metal has enjoyed a renaissance, with analysts praising its uses as a store of wealth and a hedge against inflation.
The WGC said yesterday that the central bank sell-off slowed in the second quarter, although Switzerland sold 68 tonnes and Portugal 35 tonnes.
It said that consumer demand for the precious metal had risen during the year, although investor enthusiasm had dipped as prices appeared to level off.
James E Burton, chief executive of the WGC, said: "It is important that we are not complacent. The rise in demand for jewellery and retail investment in key markets has been aided by strong economic growth and relative absence of price volatility, but gold's battle for share of wallets remains."
