Gold, which fell to 20-year lows after the first UK auction in July, declined slightly on Monday after selling by Australian professionals, then turned quiet, traders said.

The latest sale of 25 tonnes of gold is part of the UK treasury's plan to reduce Britain's gold reserves by 415 tonnes, or more than half, to 300 tonnes in a series of auctions.

Since Britain announced its plans in May to diversify its portfolio by selling bullion, the gold price has fallen by more than $30 an ounce in a wave of selling by producers and hedge funds.

The market looked weak on Monday and fresh 20-year lows were possible after the auction, said managing director of Mitsui Bussan Precious Metals in Hong Kong, Anderson Cheung. ``I am still bearish on gold in the medium and long term,'' Cheung said. ``There is too much selling above the market every time-- whether producers or big physical selling.''

The first auction of 25 tonnes on July 6 achieved a price of US$261.20 an ounce, but then gold dropped to a series of 20-year lows, ending with US$251.70 an ounce on August 25.

Spot gold was quoted at US$254.80/255.30 an ounce at 0430GMT on Monday. Other traders saw less of a price decline from the gold sale or even the possibility of a recovery.

``The impact will not be as big as the first auction,'' a trader said, adding he expected a $1 or $2 immediate drop in the price. Producer selling was the main factor pushing gold lower, he said.

The auction result was expected around 1115 GMT on Tuesday.

Also adding to pessimism was a recent forecast by industry analyst Gold Fields Mineral Services that official sector gold sales were likely to accelerate in the second half of 1999.

The extent of the slide will depend on factors that could support gold, a trader said. Gold lease rates rose to the highest levels in four years last week and were acting as adisincentive for speculators to sell short because of the high cost of funding their positions.

``With lease rates this high, people might be tempted to buy-back gold and take profits,'' the trader said. A short-covering rally, recovery in some currencies against the dollar and physical demand also could offset price declines, another trader said.

``We will probably see short-covering. If there is any major movement, I think it will be more the upside rather than the downside,'' he said.