Over the past two months the surge of gold prices in Nepal has left people wondering where the real glitter lies. The Beed's advice has been sought after by many on whether it was a good time to buy gold or sell it off. It is difficult to make any snap judgement in the Nepali context because we, as a people, regularly defy logic.

Gold prices in the international market has stagnated over the past decade. The current price hovers at $370 per ounce and the trend is rising. Gold prices that fell steadily since 1993 are suddenly seeing a spike in the higher ranges. Speculators always look back to historical prices for future plays in the gold market. The logic that drives the argument of stratospheric prices for gold lies in the past-the psychological barrier was set in 1980 when one ounce fetched $595-causing the retro-wired to ask, if then, why not now? As a commodity, gold has always been a good buy but especially when the winds of war begin to blow.

The same logic pervades the Nepali scrabble to stock gold. The international climate is accentuated in our domestic environment by an absence of other investment opportunities, low rates of interest and a lack of viable economic activity. Of the many analyses for the current gold rush, impending war seems to be the most plausible one.

The impact of war can take the dollar for a spin. The fact that the war may go on too long and too far can stall the already slowing US economy. The plummeting value of US stock markets and the unearthing of new corporate scandals have made buying stocks a risky option. The strengthening of the euro and other currencies against the dollar does not help matters. The Beed predicts that, in the event of war, many oil rich Middle Easterns will convert their dollars to more neutral currencies, sucking liquidity out of the US market. The safest route for all the countries at this time may be to revert to gold to ride through the rough times ahead.

While the demand for the precious metal is certain to grow, the supply end of the business is lagging behind, primarily due to production costs surpassing the retail prices. A return to inflated 1980s prices will undoubtedly change all that.

The current prices are demand driven to the extent of speculation only. Since gold has little industrial value, high consumption remains in South Asia, especially India, and some other Asian countries. Indian consumption has a strong bearing on the Nepali market because historically gold that entered Nepal found its way south of the border to India. Ten years ago that was the hallmark of our economy. Our per capita import of gold was inexplicable.

In a poll conducted by the World Gold Council in early Januaryshowed gold prices in 2003 as well as 2004 will have a mean price of $342 per ounce with a probable high of $400. For Nepal it means that the stabilisation point may be at the Rs 9,000 mark per tola. However, we need to bear in mind that this price assumes the stability of the dollar against the Nepali currency. Should the Indian rupee gain against the dollar the conversion rates will be revised and so will the price of gold.

But back to beginning when the Beed was asked whether to divest or invest in this precious metal; any good speculator will tell you it's all a gamble. Only time will tell if the future glitter is gold.

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