What will now replace gold?

A payment for wars, the jewellery of the ancients, but now the world's most precious metal has lost its sheen

T

o be told you were "worth your weight in gold" used to be a tremendous compliment. Now you can't be so sure. Plenty of other things, some quite surprising, command a higher price than gold, per ounce or gram, now that the price of the metal has hit a 20-year low in London. Last week it dropped to $261.20 an ounce after the Bank of England, on the Chancellor's orders, sold off 25 tons of our reserves, making it cheaper than some caviares, 90-year-old whisky, rhino horn, or musk.

While the Chancellor Gordon Brown may have decided that we can sell 415 - out of 715 - tonnes of the Bank of England's gold reserves and replace gold ingots with foreign currency, thought to be more dynamic and useful, others are less impressed. Gold reserves were never meant to be useful. hey started as a means of paying for wars: and gold remains the ultimate security in times of distress.

his is one reason why, even though its price may slide against more fashionable commodities, gold will never lose its shine in the eyes of most of the world's population. he metal was first extracted and worked into jewellery at the time of the ancient Egyptians, though it really took off with the Spanish conquest and looting of South America.

Many civilisations embrace the idea of the Golden Age, when all was perfect, but the real Golden Age has been the 20th century, with the opening of the vast South African mines that now produce about a third of the world's supply, and the discovery of a huge new range of uses for a metal that is at once an essential industrial resource and an attractive consumer item.

As a personal adornment it is prized all over the world, especially in cultures that don't share our nervousness about ostentation. And in many places, notably India, it has a religious significance. In China it has a long association with happiness. hey like it in the Middle East, too.

his makes it uniquely tradeable. It has always been a currency - not something that can be said for the elaborate products dreamed up to tempt Western investors. Its value is universally understood: some world travellers always wear a gold Rolex watch, on the grounds that hospitals won't worry about their ability to pay their medical bills if they have an accident.

Gold doesn't really earn money, either for a country or an individual investor, but it's a security. When the Korean economy developed a gaping hole last year, the government simply rounded up as much as it could of the populace's own gold. he hole was plugged.

he Chancellor's move has caused consternation, not only among South African gold producers whose miners will have to take the consequences of the drop in their product's price. Jewellers and precious metals traders are alarmed, and not a little bemused.

"It may just be that Mr Brown thinks it should be consigned to the dustbin of history," said Rhona O'Connell, a precious metals analyst with Hoare Canaccord in the City. She points out that Brown has strongly supported the IMF's own gold disposal programme, which has also hit the price.

"But it's an investment in the true sense of the word," said O'Connell. "It won't necessarily make you any money, but it will sure help you when you are being shot at." In times of affluence and in anticipation of a crisis, people buy gold. When the crisis hits, they sell it. hen they buy it back.

And this is not only a Far East phenomenon. In the US, sales of pure gold coins are said to have doubled last year, probably in anticipation of "Y2K" and the Armageddon that so many Americans fervently anticipate.

Still, for all gold's virtues, it is no longer among the most expensive commodities in the world. he precious metals of the platinum group have surged past it, driven by increasing demand and a gratifyingly dodgy supply.

he outright winner is probably rhodium, at about $900 an ounce. Platinum, which was known in South America before the Conquistadors but considered useless, goes for $346. Palladium, which comes from Russia, costs $317.

hese metals are used now in catalytic converters. "hey offer an extremely efficient way of cutting out hazardous toxic wastes going into the air from vehicles," said Jeremy Green of Metals Bulletin, trade paper of the industry. "And they are mined very erratically. he fundamentals are very strong: a lot of people are sticking with that."

he "fundamentals" - the underlying economic realities of supply and demand - are important to investors, large and small, but they don't necessarily explain the prices paid for things. Finished diamonds can fetch about pounds 25,000 per carat (a carat being 0.2 of a gram). hat makes them at least 10,000 times as expensive as pure gold, a price that reflects considerable human skill as well as the tight controls over their supply.

But despite the crisis, many will stick with gold. As Rhona O'Connell said: "Gold is the only money that is no one else's liability. It hasn't got `I promise to pay the bearer on demand'. It is not subject to political foibles and vicissitudes". Which is why most of us would rather have a couple of gold bars under the bed than a bundle of crumbling euros.

ALL HA GLISENS ...

WHA ARE HEY WORH?

ALAN SHEARER: pounds 6000/oz

DIAMONDS: pounds 14.9m/oz

DEGAS PAINING: pounds 8m/oz

RHINO HORN: pounds 340/oz

PLAINUM

$346.50 or pounds 221/oz

PALLADIUM

$317 or pounds 202/oz

RHODIUM

$900 or pounds 573/oz

source: Metals Bulletin

DIAMONDS

100.10 carat diamond sold at Sotheby's, Geneva in 1995 for $16.55m or pounds 14.9m/oz

source: Guinness Book of Records

MEEORIE

Fragments go for $50/g or approx pounds 900/oz

source: Natural History Museum

FINE AR

Degas' Danseuse au Repos sold for pounds 17,601,500 at Sotheby's on 28 June 1999 or approx pounds 8m/oz

source: Sotheby's

WHISKY

90-year-old Macallan from Fortnum & Mason

pounds 20,000 for 75cl or approx pounds 750/oz

source: Fortnum & Mason

WINE

1787 Chateau Lafite sold at Christie's in 1985 for pounds 105,000/bottle or pounds 4,000/oz

source: Guinness

CAVIARE

Almas yellow caviare from albino sturgeon

pounds 354/oz

source: Guinness

LIVESOCK (HUMAN) LIVESOCK Alan Shearer

sold for pounds 15m or approx pounds 6,000/oz

LIVESOCK (ILLEGAL)

Rhino horn

pounds 12,000/kg or pounds 340/oz

source: Customs & Excise

LIVESOCK (LEGAL)

Bile from bear's gall bladder (used in Chinese medicine) up to $2,000/gram or pounds 36,000/oz

MUSK

From deer for perfume

$50,000/kg or pounds 900/oz

source: Customs & Excise

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