Gold market thwarts expectations

		Rodney Smith BBC business reporter

It's an appalling thing to say, but for a while it looked like the gold bullion market never had it so good.

First there is a huge calamity, with worldwide repercussions on 11 September. Everyone then typically rushes to safe havens.

And the oldest safe haven of all? Gold.

But it didn't happen like that. Gold made it into the $290s an ounce mark, but slowly fell back to its long-term trend, around the mid $270s an ounce.

This did not please perplexed gold miners and bullion traders. They fell back to their pre-September 11 positions.

The rational view

Many are taking a rational view of the market.

A typical example is Mitsui Securities' Andy Smith, who gave the bullion market a little shove about a month ago when he switched from long-term bear, to short-term bull.

He said he was looking for gold to go to $340 an ounce.

The reason it has not, he now says, is because the fear factor has drifted away.

People are no longer as scared as they were in the month that followed the attack on the Pentagon and the Twin Towers.

Look at the stock market back where it was before September 11, he says. Look at the Swiss franc - flat - look at gold - just a little stronger.

Credit Suisse pulls out

The stunner for the gold market, he thinks was Credit Suisse's decision to abandon the gold market in early October.

That would have been unthinkable for a Swiss bank only 10 years ago.

Then and later they were recommending investors to keep 5% to 10% of their wealth in gold.

So does Mr Smith take back his forecast of $340 an ounce by the end of the year?

"Certainly not," he says. "I'm sticking to my guns." He thinks the fear is still there, just dormant.

'Dormant' fear

The bull turned bear gold miner Peter Hambro, formerly of Gold Mines of Sardinia, now "the third biggest gold producer in Russia", also thinks this.

When the aircrafts hit the Twin Towers, I ran for the cash machine. I am the sort of person who believes that disaster could strike at any time

Peter Hambro
gold miner

"When the aircrafts hit the Twin Towers, I ran for the cash machine. I am the sort of person who believes that disaster could strike at any time."

"The trouble is too many people don't know about life without cash machines."

Gold conspiracy

Like some other producers, Mr Hambro leans towards the GATA/Reg Howe theory about the gold price.

This is the case being brought in the United States that alleges the authorities have conspired with central banks and the huge investment banks to suppress the gold price.

"After all, the very bright people at the immensely powerful Bank for International Settlements, have been manipulating foreign exchange markets into stability for years, they have persuaded the oil producers to keep a lid on oil prices," argues Mr Hambro.

"Why not gold too?"

Why not gold? A runaway gold price could be the kind of destabilising factor "the authorities" are striving so hard and so successfully to avoid.

It could also do huge damage to big banks that have backed big hedge positions.

A commodity?

But it's hard not to conclude that in these days of highly sophisticated financial engineering, good old gold just could be turning into the commodity metal.

Or as Randall Oliphant, president and chief executive of America's biggest gold miner Barrick, told shareholders recently, "Gold is becoming a consumer product".

That made the gold bulls mad.