The 1998's second quarter period opened with gold prices maintaining their stronger tone, holding around the $300 per ounce level as market sentiment continued to improve, mainly due to receding fears of central bank sales. The market's attention focused more on the likely gold holdings of the European Central Bank (ECB) and on currency movements, with the fragility of the yen, the South African rand and the Australian dollar relative to the US dollar giving rise to considerable uncertainty.

Against the background of an upturn in oil prices following a reassessment of Opec's agreement on production cuts, together with mounting concern over the Japanese economy after a negative report from the Moody's, gold soon showed renewed signs of strength. Overhead resistance at $302 per ounce was penetrated on April 3, and with both fund and Asian buying in evidence, the price surged to $314 per ounce on April 6.

The sharpness of this rally quickly led to the perception that the market had become overbought, and after the resulting technical selling had run its course, prices settled within a $305-310 trading range. Comments by Bundesbank Council member Ernest Welteke to the effect that gold would play only a small part in the reserves of the ECB had only a limited impact, and the release of Commodity Futures Trading Commission (CFTC) figures showed that the net position of the large speculators on Comex had switched dramatically from a short of 42,151 contracts (equivalent to 131.1 tonnes) to a long of 5,247 contracts (16.3 tonnes).

Prices held steady over the Easter period as the market's focus switched to palladium, which was soaring to 18-year highs on supply developments in Russia. Light producer forward selling of gold was in evidence, encouraged by the favourable Australian dollar price, but underlying support proved firm and the re-emergence of fund buying on April 21 started prices moving higher once more. The highest fix of the quarter was $314.60 per ounce on April 23.

Profit-taking then caused gold to retreat, with a renewed bout of yen weakness applying additional downward pressure. On May 1, Belgian Finance Minister Philippe Maystadt was quoted as saying that Belgium might sell more gold. This triggered a strong burst of selling, and although the reports were promptly denied, the damage had already been done, with the price falling back toward $302. Short-covering helped quotations to bounce briefly back up to $307, but selling from disappointed bulls steadily undermined the recovery, and by May 6 gold was testing support at the $300 level.

The release of CFTC statistics showed that the large speculators on Comex had continued to add to their long positions until April 28, but there was no doubt in the market that this began to change immediately thereafter.

Over the next two weeks, gold traded within a narrow range, with the volatility in the precious metals markets confined to palladium and silver. External events such as the imposition of US sanctions on India following that country's series of nuclear tests, and the mounting civil unrest in Indonesia, had little impact. Even developments more closely related to the gold market, such as a series of comments by central bankers and government officials speculating on the likely role of gold after the establishment of the ECB, lacked the power to move prices.