Volatilities add weight to gold safe haven
claim
11:27 a.m. Oct 16, 1998 Eastern
By Patrick Chalmers
LONDON, Oct 16 (Reuters) - Violent swings in world
stock markets, currencies and bonds, and the
white-knuckle rides they entail, have shored up the case
for gold as an investment haven, analysts said on Friday.
Thursday's four percent hike in the Dow Jones industrial
average, a knee-jerk hurrah after the U.S. Federal
Reserve's surprise interest rate cut, had simply added
weight to the argument, they added.
Others disagreed, saying gold had failed to shake off its
Cinderella status during other periods of financial
uncertainty and would disappoint once again this time.
Mitsui commodities analyst Andy Smith said gold's recent
performance versus stocks, bonds and foreign exchange
made it an increasingly attractive insurance policy.
He pointed to Thursday's closing values for 20-day
historic volatilities in dollar/yen, the Dow, the U.S. long
bond and gold as evidence of the metal's new-found
respectability.
Most volatile was dollar/yen at 31.3 percent followed by
the Dow at 28.8 percent, the U.S. long bond at 24.3
percent and gold at 15.4 percent.
Smith said investors should nevertheless beware of those
pushing gold as a financial cure-all, drawing a parallel
between the current world financial contagion and
Europe's bubonic plague outbreaks during the Middle
Ages,
''Like clergy in the plague years, who pushed a
'pessimistic view of man's fate in order to prove the need
for salvation', apocalypse peddlers should be treated with
disinfectant.
''But suddenly gold looks cheap, if crude, insurance
against financial pestilence, barely half the historic volatility
of forex, bonds or Wall Street,'' he added.
Lawrence Eagles, broker GNI's head of commodity
research, said Russia's debt default last July had caused
the turnaround in gold, helping it rise from August's
19-year low near $270.00 a troy ounce back to $300.00.
''People are buying gold because there's the possibility of
a serious collapse in the monetary system,'' he said, adding
that two U.S. rate cuts and a bail-out package for Japan's
indebted banking sector had prevented it going even
higher. Gold's relentless fall to August's low, the result of
central bank gold sales and knock-on sales by mines and
hedge funds, made people reluctant to trust it, Eagles said.
But that could change if financial problems spread to say
Brazil, he said, where a currency collapse would pose a
real threat to the U.S. economy.
Peter Hillyard, commodity trading group vice president
with Bank of America, remained cool to gold's potential,
saying it should play only the smallest part in a diversified
portfolio.
''I think that as a risk diversifier, gold is not it. If I were
asked by someone to recommend a number that would be
a low one, less than one percent, less than even half a
percent.
''We have seen more investor interest in the last few
weeks than we have seen for a long time but they have not
been all over us like cheap suits,'' he said.
Peter Dixon, senior economist with Germany's
Commerzbank in Frankfurt, agreed, saying fears about
European central bank sales continued to dog gold.
''In this day and age - the era of cyber money - gold does
not really play a big role in the world economy,'' Dixon
said.
He favoured European or U.S. government securities as
the best insurance option, despite recent volatility.
''If we are heading for a period of low inflation or even
deflation, that would seem to be the sensible option,'' he
said.
((London Newsroom +44 171 542 8057.
london.commodities.desk+reuters.com))
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