|
Gold’s role in the next millenn
Gold has been going through a lean patch in recent times. Naturally, there is a big question mark over the future role of the metal in the next millennium. Most detractors see gold only as an article of adornment. They believe that it lost its ‘safe haven’ status during the Gulf War in 1991 -- the yellow metal actually fell after the first few days of the war. Many also believe that its days as a hedge against inflation are also numbered. No more of the heady days of the 1980s when soaring oil prices and wars in Iran, Iraq and Afghanistan had seen gold scale its all time high of $850 per ounce. Detractors also point out that the last time that gold scaled $400 per ounce was three years ago. Today, even oil prices soaring to $24-26 per barrel, up from near sub-$10 per barrel levels earlier this year, and rising commodity prices have failed to trigger any worthwhile rallies in gold. The failure of the yellow metal to cash in on, first, the September 26 Washington agreement between 15 European banks against selling more than 2000 tonnes of the metal over the next five years, and then on the negligible effect of the Y2K factor on gold prices, could mean that gold could remain confined to below the $300 per ounce mark in the medium term. Already obituaries are being written on the yellow metal. But is gold dead and gone? Or has it still some meaningful role left to play in the 21st century? Gold bugs will vehemently disagree with the idea that gold is a spent force. They point out that the precious metal once condemned by Keynes as a ‘barbaric relic’ is still the universally accepted medium of exchange; that it is the ultimate currency by which one nation settles its debts with another. Believers in the metal point out that gold continues to perform its role as the last resort. They cite an impressive list of achievements: The Southeast Asian crisis saw South Korea and Indonesia mobilise 293 tonnes and 144 tonnes of gold, respectively, from private holdings to tide over a difficult phase. Lebanon, ravaged by 15 years of civil war, has not defaulted on any of its loan repayments due to its official policy of holding $3 billion of gold as reserves. It has never sold gold since 1947. India benefited during the BoP crisis in 1991 by swapping 40 tonnes of gold. Even the current gold bond scheme is an effort to effectively utilise the country’s vast gold resources to boost the economy.The erstwhile Soviet Union turned to gold in an attempt to survive during the 1989-91 period. Russia, now without gold reserves, is at the mercy of all.Iraq and Libya, faced with sanctions, have been trying to get around them by secretly selling gold.The Chinese policy aims at increasing the country’s gold resources so that it can draw from the reserves in times of crisis, as it did after the Tiananmen Square massacre in 1989. The yellow metal also has a unique plus point: it is no one’s liability. All currencies are -- be it the mighty dollar, the yen, the mark, the euro, or the Polish zloty. While currencies have had their ups and downs, in the long run, gold has stood the test of time. As far as the gold sector in India is concerned, its hibernation for nearly 30 years due to the Gold Control Act means it has always been playing catch-up with the rest of the world. Regarding setting up a bullion exchange, it is not a question of if but when. And when thinking about utilising the private gold holdings, care should be taken that India does not go the Russian way. Also, it may be worthwhile to ponder why the USA holds over 8000 tonnes of gold and why Italy, France and Germany continue to buy the metal. India has the wherewithal to dominate the world bullion markets in the coming years. It just needs to go for it.
|