EDITORIAL PAGE — Investor interest in gold

During the past year, gold prices have been on the rise. After falling to US$326 per oz. in March, 1993, they have risen in what may prove to be the beginning of a major cyclical upward move, according to Jeffrey Christian, managing director of commodities consulting company CPM Group of New York.

Many factors are involved in determining gold-price patterns, the leading indicator being investment demand, as Christian emphasized in a recent speech in New York City.

Private investment demand began to revive sharply in the final four months of 1992 for a number of reasons, including the crisis in the European monetary system. For all of 1992, investment demand for gold is estimated to have totaled 13.6 million oz., 50% higher than in 1991. For 1993, investment demand is estimated to have risen another 50%, to 21.2 million oz. The large inflow of central bank gold at this time masked this increase in demand, helping push gold to its March, 1993, low, Christian noted. Prices began rising shortly thereafter, when, after February, 1993, the flow of central bank gold into the private physical market abated. As prices rose, some central banks pulled back from further sales. With so much central bank gold in the market, investor purchases were able to rise sharply without having an immediate effect on gold prices.

Investor interest in gold has continued during the first four months of 1994. A host of factors have contributed to this interest, including: stock market gyrations; the resignation of Japan’s prime minister in April; concerns over political stability in South Africa; U.S. economic uncertainties and rising fears of inflation; declining interest rates in Europe; and, of course, continuing economic growth in China and the rest of Asia.

According to CPM, all these factors are expected to keep investors interested in gold, at least intermittently, during the rest of the year and into 1995. The company is bullish about gold prices for the next year or so. Gold supply and demand conditions, along with the underlying economy, suggest that prices should rise for at least

another four quarters.

The rate of increase on the supply side has slowed in recent years, from 5-6% per annum in the late 1980s to around 2.6-3% during the past four years. A further slowing, to perhaps a 1% growth rate, is expected in 1994.