The rally, which occurred during the first quarter of this year, could not sustain as the Swiss finance minister Kaspar Villiger announced that the country could start selling around half of its gold reserves in late 1990 or early 2000 if parliament and voters approve of the plan.

The Swiss federal government has approved a draft law which would help link the Swiss franc to gold, paving the way for the Swiss National Bank to sell around 1,300 tonnes of gold. The plan was to revalue and gradually sell gold reserves, which requiresparliamentary approval and an amendment of the Swiss constitution and must be endorsed by Swiss voters in a referendum.

Villiger said sales of around 1,300 tonne of excess Swiss gold reserves would probably be spread over five to seven years to avoid disrupting prices.

The prices fell following the statement but the market somehow managed to absorb the shock. As if this was not enough, the weakening position of the Japanese Yen against the US dollar in the recent past has further worsened the scenario.

However, the worst seems to be over for the yellow metal. And there are ample chances that the performance of 1997 will not be repeated. As the Gold 1998 -- a report prepared by the Gold Fields Minerals Services Limited, London -- says, "Looking at the physical supply and demand within the gold market itself, the outlook for 1998 appears less discouraging than it did some months ago".

What is heartening is the fact that almost all the negative news has come and the prices have already discounted thesefactors. As far as the proposed gold sale by the Swiss government is concerned, it does not cause a major problem.

Given the fact that the government had to make a sale of around 250 tonnes a year, the quantity appears very large for the market. During 1997, around 393 tonne of additional supply came from the central banks. The damage to the gold prices was around 30 per cent. But more than the damage, the sale would create a negative sentiment which would hurt the price much more than the actual sale. This is simply because the fear of the addition sale would in all probability keep gold buyers away.

If Switzerland's plan to sell the yellow metal materialises, the prices would fall much in advance of the actual sales as the whole market would be waiting for the Swiss bank's supply. Neither the investor nor the Swiss government would like this. In fact, the implications of such a huge sale on gold prices may act as a major hurdle in getting the approval from the parliament and voters.

As such, over thelonger period, the proposed sale does not cause a major problem for the gold market. While the Swiss sale is a long-term issue, the immediate factor which can have an impact on the gold prices is the European Monetary Union which starts on January 1, 1999.