This event is of great significance since it has pitted America the largest economic power in the world against a growing terrorist power. American economic power is so closely integrated with the economies of several countries in the world that any negative impact on it could have repercussions on several countries.

If one goes by the known psychology of terrorists in general, there is no doubt that they would be getting back at America as soon as an opportunity arises. The reaction from Pakistan in adopting Shariat laws in the country is an indication of how the Muslim countries may consolidate under the religious banner as a result of the American provocation. For those who have read about Nostrodamus, the events unfolding and the appearance of Osama Bin Laden as a key political figure, bring to memory the famous predictions that suggest the possibility of the next world war around 1999. However remote the chances for such an occurrence are, it would be prudent to review our portfolio mix and modify it to suit the changing prospects of investments.

In such a situation one option available to investors is to increase the weightage Gold in the portfolio. After all Gold has been always considered a "crisis investment’ and now the time appears to be ripe for investment in the yellow metal.

Currently, Gold is quoted around Rs 4150 per 10 grams, in India and US$ 285 –290 per ounce in the International market. This is one of the lowest rates in recent times. Many analysts are of the view that Gold prices have bottomed out, consolidation phase is over and a sharp increase is round the corner from the current level. We must remember that since August 1995 when the Gold prices were ruling around US$ 395, the prices have been steadily falling.

After touching US$ 277 in January 1998 the movements have been only sideward. Current prices are near to the cost of production and any further fall is expected to result in closure of mines and bouncing back of prices due to consequential shortage.

During the second quarter of the current year, the world Gold demand is reported to have jumped up to 634 tonnes which was more than 50 % of the first quarter demand. In fact Indians were the top buyers with an estimated record purchase of 206 tonnes. While jewelry demand as always has been the backbone of this demand surge, the conditions are ripe for an investment demand as well. Investors should remember that holding Gold in jewelry form depreciates fast and is prone to risk of theft or loss. On the other hand, Gold in the form of sovereigns preserves its value in tune with the market prices. They can also be safely stored either at home or in Bank lockers until the need for disinvestment arises.

About six months back, RBI authorised some of the Commercial Banks to import Gold and sell in the Indian market. This was expected to provide a reliable source of quality Gold at market prices and through official channels. This was ideal for small investors who wanted to accumulate investment in Gold through periodical purchases. Many investors had hoped that this would help them incorporate Gold into their regular portfolio

Strategy. Unfortunately most of the Banks who have been authorised to deal in Gold have been operating only in the Wholesale market and have not thrown open the service to the retail investors. They have thus remained only as indenting agents for the large jewelry manufacturers. Hopefully, RBI would persuade them to enter the retail markets for which they are eminently placed. Until then investors have to depend on the large jewelry manufacturers who sell pure Gold under their hallmark for the supply.

With the funds generated by the Resurgent India bonds which garnered around Rs 18,000 crores releasing a large investment surplus for gilt securities, the interest rates the debt markets may not increase immediately as was earlier expected. Investors may have to therefore Contend with debt instrument yields only at the current levels. The equity markets have been good only in a few specific industries. In such a scenario investment in Gold could be considered as an alternative to keeping idle cash.

Many economists consider investing in Gold as unproductive as compared to industrial securities. While this cannot be denied, from the investor’s point of view, when only a few good investment opportunities are available in the market and a global economic uncertainty is lurking over the horizon, Gold is an investment option which cannot be ignored.

Na.Vijayashankar

(naavi@iname.com)

29/08/98