Bears on prowl in the hope bugs get bitten

WHILE gold bugs having been merrily piling into the metal over the past two years, another group has been quietly exiting, happy to sell while the price is relatively buoyant.

For every bull, there is a bear convinced the long-term prospects are gloomy. They agree with the economist John Maynard Keynes who called gold a 'barbarous relic'. They see the soaring price today as 'the final twist in the dinosaur's tail,' as one analyst recently put it.

For, despite gold's appeal over more than 5,000 years, the auguries are mixed. Gold's great advantage - it does not rely on anyone's promise to pay - is also its drawback: there is no counterparty to pay the investor a yield. Ingots pay no interest or dividends. Only in times of international tension or financial nervousness does this get overlooked. Gold's last great rally was in the late 1970s when the Cold War was at its height, inflation rampant and people were stockpiling baked beans.

Two trends cast a long shadow. More than 32,000 tonnes, equal to 13 years of world output, owned by central banks, overhang the market. While some governments cling on to their holdings, others such as Switzerland, Australia and Britain are net sellers.

And India, by far the biggest consumer, may ultimately lose its appetite if traditional uses for gold - marriage dowries, bribes and tax evasion - recede.