Even when the 25 tonnes of gold to be sold by BoE Treasury is expected to rattle the gold market, this does not seem to have dissuaded a section of smart hedge fund managers which have, of late, been attracted to the improving prospects of returns for their clients from investments in gold.

Sources in the bullion banks here indicate that with weakening of the US dollar against yen in particular, and marginally against other currencies like the euro and the British pound, the volumes in options on gold futures on the New York Mercantile Exchange (NYMEX / COMEX) have increased substantially since end-August.

The most popular of the gold options on the NYMEX is the 100ounce contract, which at $255 per ounce works out to $25,500. At Rs 45 to one US dollar this equals to Rs 11,47,500 per one gold options.

While the details of volumes of options traded, size of investments made by the fund managers, names of funds active on the gold market and the months of options traded are not available, the renewed interests of the hedge funds has helped to push the sluggish prices of the yellow metal over the past few weeks.

On the NYMEX, the bid price for gold has risen from a low of $252.2 per troy ounce on July 11 to the recent high $261.2 on August 22. Currently, the price has slipped to around $255 per troy ounce.

Against this, the greenback has slipped (vis-a-vis yen) to a low of yen 108.8 per one US dollar (closing bid price on September 12) from a high of yen 119.21 to one US dollar on May 2.

If the gold prices slip further, there is likelihood of a section of US based hedge fund managers moving in afresh to park their funds temporarily in gold futures till at least thereis strengthening of the greenback. This is likely to push up once again the gold prices.

As part of its announced decision to reduce gold reserves, BoE had in early July this year, in its first tranche, sold a large chunk of gold. This step saw the gold prices plunge on the NYMEX / COMEX by more than $7 per troy ounce on a single day -- July 11 -- to a low of $255.45 from a high $263.

``There's no reason to be overtly bearish on gold prices,'' said an executive of a leading bullion bank in Mumbai. ``That the prices have been moving up over the past few weeks indicate renewed interest of the investors.''

According to the bank executive, it's difficult to predict the gold price movements based on technicals, for ``there are too many external forces affecting the sentiments and the prices. Despite this, it is unlikely that the gold prices will plunge once again, primarily because the bullion traders have already factored in the selling of gold by BoE.''

Among others, bullion bank officials cite at leasttwo main reasons for the gold prices not to go down substantially.

First, the USA has managed to convince the officials of the International Monetary Fund (IMF) ``at least temporarily'' not to sell gold as earlier announced.

Second, the demand for millennium sales of gold and diamond studded jewellery is expected to push up the demand for the yellow metal from all across the world.

Against this optimist outlook, the London-based Gold Field Minerals Services (GFMS) has predicted a further fall in gold prices. GFMS is a research and consulting company and has ruled out any recovery of the lost ground in the first half of 1999.

In a recently worldwide published note, GFMS said the bias to the downslide largely stems from the continued propensity of those holding gold reserves to supply the market at ever-lower prices.

Citing the factors which would be responsible for the pressure on gold prices, the `Gold Survey 1999 - Update 1,' indicated increased net sales of gold by the world's central banks in abid to provide enough liquidity to fund continued growth in producer hedging and, probably, speculative short selling.

The survey attributed the enormous growth in supply to short selling in the wake of the UK Treasury's gold sales announcement on May 7 that forced gold prices down to historic low levels.

Although the announcement was seen by GFMS as the ``defining moment'' for the market this year, the findings of survey noted that prior to this the price had already been under pressure. It stressed that prices would probably have drifted down to the US$ 250 level in the near to medium term regardless.

The World Gold Council (WGC) representing the interests of gold miners worldover, has ``condemned the announcement of the BoE.''

In a note released last week, WGC's chief executive officer Haruko Fukuda said: ``We deeply regret the fact that the UK Treasury has -- against the welter of public criticism -- decided to pursue this policy of selling some of the country's gold reserves by auction.

At atime when the IMF tentatively appears to be rethinking its own plans to sell gold into a weak international markets, because it has seen how damaging this action is to many of the world's emerging markets' gold producers, it seems perverse of the UK Treasury to stick to a policy which undermines not only Britain's economic security, but which additionally weakens the prospects for growth among many developing nations.''