"I don't see why this one should be an exception (and rise) at a time when physical demand is quiet."The auction is number two in a second series of sales in the Bank of England's controversial programme to more than halve gold reserves and modernise its portfolio by replacing bullion with dollars, euros and yen.

No reason for increase before auction
Gold trended lower within a narrow range all last week as speculative funds liquidated some long positions.Spot was indicated at $284.00/$284.50 a troy ounce, up from $283.30/$284.00 at the New York close on Friday, but dealers said the price could fall again before, and possibly after, the auction. "The most recent COMEX numbers showed the speculative market to be net long gold so there's a possibility of a negative change in sentiment. It's not as if people will need metal to cover shorts," said Martin Potts, mining analyst at Williams de Broe.The last two auctions have not attracted great buying interest and dealers expected no change in the pattern this time.

"We're moving into the summer, people aren't excited by it at all," Gerry Celaya, a dealer at American Express in London, said.At the last auction in May bids exceeded offers by only 2.7 times, down from the high point of a 4.3 times oversubscription in January.

"Anything less than three will be interpreted as not particularly encouraging," Warwick-Ching said.Market questions auction route
The frenzy that accompanied the first set of UK gold auctions and caused price volatility has abated, but market players still question the validity of the UK sales plan."I'm disappointed that the Bank of England is continuing with this method when others are using more tested and appropriate methods," Potts said.Other central banks sell gold into the market then release the information after the event.

The Dutch have concluded a first 100-tonne tranche of planned sales of 300 tonnes over five years and the Swiss National Bank is gradually carrying out plans to place 120 tonnes of its 2,950 tonnes of reserves via the Basle-based Bank for International Settlements by the end of September."The Bank of England way means there's always the danger of a big swing from the sale of a relatively small amount," a dealer said.

The UK plans to reduce its gold reserves by 415 tonnes to 300 tonnes. After this week, the remaining auctions for 2000 and 2001 will take place in September, November, January and March.