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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: lorne who wrote (45876)	12/12/1999 2:46:00 PM
From: Alex	Read Replies (1) \| Respond to of 116764

Near and dear to the vault Derrick Machado Gold still retains its traditional role as a reserve asset even in the industrialised worldMAY you live in interesting times,? was the harshest curse the ancient Chinese could wish on their enemies. The gold market has certainly been living through interesting times recently. We live at a time when many sophisticated analysts in the industrialised world would have you believe that gold has become just another commodity, with no value as an investment. According to these commentators, gold may once have served two purposes, first as a luxury good in the form of jewellery for adornment purposes and also a store of wealth. In this modern world, of course, gold no longer has a role to play as a monetary asset or financial instrument - or least, that is the way the proponents of today?s conventional wisdom would have it. Fortunately, the oldest users of gold: Egypt, India and the SE Asian countries think differently. It is not as if this traditional view of gold?s intrinsic strength is held only in the Orient and East. Three recent instances have demonstrated that gold still retains its traditional role as a reserve asset even in the industrialised world. The European Central Bank, the latest central bank to come into existence - and one that did not carry any baggage of the past - will have significant gold holdings coupled with the stipulation that any gold sales by individual central banks will be subject to control by the ECB. Another demonstration of faith in gold came from the signatories of the Washington agreement, September last. When fifteen countries limited their gold sales over the next five years. The third instance was the IMF?s reworking of the proposal to sell its gold reserves. But even as analysts and central bankers were heatedly debating gold?s role in the future, the man on the street strongly believed in the store-of-value property of the yellow metal. Demand all over the world showed growth. It is this wisdom of the common man that will confirm the role of gold firmly in the same place as it has been in the last seven millennia. Gold?s role in the currency market has been around for only 2,500 years of this period. And its role as a store-of-value and investment has not diminished during this period. Take India for example. For ages Indians have revered gold for its endearing qualities. While it has ornamental and prestige value, it also is a safety net and insurance. Even today, gold is the only international currency that a common man in India can hold and is his asset of last resort in adverse times. India embarked on the path of liberalising the economy in 1991 and among with it came the permission to import gold; NRI?s upto 10 kg and banks under OGL to sell in the retail market. The opening of these channels for importing gold and the new initiatives by the regulators has proved extremely beneficial for the consumer as well as the government. China, another populous nation, seeing the benefits accrued by India is now thinking liberalising its gold sector. Similar moves are on in Egypt and other Middle Eastern countries. All this is expected to lead to an explosion in demand. And it is no secret that mines are producing lesser at higher costs as they go deeper into the earth. People in the South-Eastern countries sold their gold during the economic crisis a year ago. Gold proved to be their safety net at a time when stocks, currencies and property went bust. As the region recovers, gold buying is back with a vengeance. A more recent example is the increased demand for gold coins in the US to hedge against potential losses due to the Y2K fall-out. Gold has again emerged as the asset of the last resort despite the availability of other sophisticated hedging options, even in the most mature economy of the world. In the new economic order that is emerging only three currencies seem to be liquid: the US dollar, the euro and the Japanese yen. It seems unlikely that those outside the US, Europe and Japan would like to hold only these currencies. Even more unlikely is any one of the three holding only the other two. Under the circumstances, the only other reserve that is not somebody else?s liability is gold. Gold will thus continue to play its 7,000-year multiple roles: adornment and store-of-value for the masses, a liquid investment option for a few and a reserve asset for nations. It can never become just another commodity. Conventional thinking inevitably moulds itself to incorporate traditional wisdom. The author is Regional Director-India, World Gold Council