Two federal agencies took steps yesterday to curtail speculation in gold in an attempt to prop up the dollar and ease inflationary pressures.
The Treasury Department announced it will no longer auction off the same amount of gold on the same day each month. Instead the time and size of the government's gold sales will be revealed only a few days in advance.
At the same time, the Commodity Futures Trading Commission disclosed it is considering limiting the number of gold futures contracts that speculators can hold.
The two actions were announced separately, but both were clearly aimed at taking the pressure off the gold market.
Speculation in gold has been blamed for weakening the dollar and increasing inflation by driving up prices of other commodities.
In yesterday's trading, gold prices dropped again on the Zurich, London and New York markets, closing in London at $391.50 per ounce -- down $9.
Treasury officials said their decision to change the monthly gold auctions was meant to "deter speculation."
"The speculative element has had an effect on confidence globally and on inflationary expectations," a Treasury spokesman said.
The soaring price of gold, economists say, has increased fears that the government is unable to control inflation.
The Treasury's intent is not necessarily to hold down the price of gold, but to keep the government from contributing to the gold fever by dangling a prize in front of gold speculators every month.
Since last May, the Treasury has auctioned off 750,000 ounces of gold on the third Tuesday of every month. At the October auction, held yesterday, the gold sold for $291.98 per ounce.
In the future, the Treasury announced, the amount of gold auctioned will range from 300,000 ounces to 1.5 million ounces per month.
The time and amount to be sold will be announced a few days in advance, the treasury said.
The old practice of automatic monthly sales "plays into the hands of the gold speculators by showing all the cards once a month." said Rep. Henry Reuss (D-Wisc.) chairman of the House Banking Committee, Now, he added, "We'll keep the specualtors guessing and thus benefit both the dollar and world economic stability."
Speculators could also be thrown off balance if the Commodity Futures Trading Commission decides to impose limits on the amount of gold that speculators can buy.
The CFTC took the first step toward doing that yesterday by formally announcing it would hold "staff discussions" of a limit on speculative holdings in precious metals.
Congress has imposed limits on the number of futures contracts that can be held by one speculator in agricultural commodities, and has given the CFTC power to put limits on other futures markets to curb speculation. Until now those powers have not been used.
A futures contract gives the investor the right to buy or sell a specific amount of a commodity at a specified future date. Speculation in gold futures has been intense for several months and has spilled over into other commodities, starting with silver and copper and spreading to agricultural products.
The CFTC has been watching the gold and silver markets closely for several months, said John Mielke, the agency's director of surveillance. Large speculative traders are required to file confidential reports on their holdings with the CFTC every month, giving the agency an inside view of who is speculating in gold.
The reporting rules apply only to speculators who hold more than 100 contracts for gold or 250 contracts for silver. The limits on speculative holdings in other commodities range from 150 carloads of eggs or potatoes to 3 million bushels of soybeans.