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Hong Kong, Dec 11: The gold price is in danger of tumbling next year, despite its ability to weather a historic fall in commodity prices, a senior banker said on Friday.
Gold, though stagnant, has held up as prices of many other commodities have been sliding, said Dick Gazmararian, executive vice president of Republic National Bank.
"Gold is in the doldrums but it is surprising that it has not been coming down," he said.
Producers' buying back hedge positions, such as Australia's Normandy Mining Co, and a lack of producer selling in recent weeks have kept gold from falling, he added.
But physical demand in Asia, which in the past absorbed most of the world's new gold production, was weak amid a general decline in prices, Gazmararian said.
"If the world continues deflating, sooner or later the gold price will go with it," he said.
Key commodity price indices have fallen to the lowest levels in more than 20 years and oil prices dropped to $9.60 a barrel on Thursday in one of the worst price crashes in history.
Gazmararian forecast gold prices in 1999 to remain around 1998 levels, ranging up to $325. But he said if deflation took hold, gold could fall below $275 next year, he said.
Spot gold was quoted around $294.50 an ounce at 0840 GMT.
Physical demand for gold in Hong Kong was "very bad" with no apparent lift from the Christmas season, a bullion trader said.
"Demand is down because of the clampdown on smuggling of gold into China, the fact the official price in China is now in line with international prices and because income levels are down, so there is not much demand for jewellery," he said.
The premium for kilobars in Hong Kong was steady at 30 US cents above London prices.
Gold premiums in Southeast Asia were likely to be supported by year-end festival demand, Singapore bullion traders said.
But they did not expect major improvement because theout look for regional economies remained bearish.
Physical demand was likely to emerge ahead of Christmas, the Moslem festival of Eid-al-Fitr in January and the Chinese New Year in February, traders said.
"There will still be seasonal festival demand as usual but it won't be huge when the (economic) crisis is still going on," said one trader at a bank.
Consumer spending, especially for luxury items, suffered as large parts of Asia slipped into recession.
Premiums were seen by the trade at around 20/30 US cents, unchanged from a week earlier.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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