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CAMBRIDGE, England — Earlier this year Japanese and U.S. television stations carried pictures of Japanese housewives queuing up to buy kilo bars of gold, costing around $10,000 at the time. Their action and subsequently that of investors around the world have resulted in a 15 percent increase in the price of gold since the beginning of the year. February saw a 700 percent surge in Japanese gold imports. Gold sales surged in other markets, too.

Japanese housewives are canny investors. So what is going on, what can they see that millions of us don’t — even after the value of our stock market investments fell more than the price of gold rose over the same period?

Like the rest of us, Japanese housewives have become disillusioned with stock markets around the world. Big savers, worried about the way the Japanese economy is going, the inability of Japanese politicians to do anything about it and the reduction of deposit insurance on bank accounts, they are moving out of the stock market and into gold.

Stock market scandals in the United States, the collapse of the dot-com boom, 9-11, U.S. President George W. Bush’s threatening speeches and the Mideast crisis have put investors off the U.S. and other stock markets.

Investors are also worried about falling returns on U.S. Treasury Bills and U.S. bonds, other traditional investment vehicles for Asian investors, as they fear the continuing collapse of the dollar; pulling out of U.S. investment paper makes this a self-fulfilling prophecy.

Investors everywhere are turning to other assets. House prices and prices achieved in auctions for fine art and collectable wine, for example, are moving up in many financial centers. Anything but paper investments is the order of the day. Gold is one winner.

This goes for China. In addition to global causes of the bull gold market, domestic factors at work in China have led to a jump in demand for investment gold. Gold sales in China rose by 5 percent in the first quarter of this year. Almost all of the increase was accounted for by a growth in jewelry sales.

Worries about Chinese banking with its nonperforming loans, worries about governance problems with companies listed on the Shanghai and Shenzhen stock exchanges, political uncertainty ahead of the Party Congress in the fall, growing unemployment and related civil unrest as well as fears for world peace all make gold look like a preferred haven for investment, especially with falling interest rates on the main alternative — Chinese government bonds.

Until recently gold would not have been much of an investment option for Chinese investors. Gold jewelry was available, but it could only be sold back to the People’s Bank of China on a gold-content basis, with no allowance for the quality of the value-added design and workmanship. There was no access to investment gold, as there was no market in it; gold bullion could be bought direct only from the People’s Bank of China by fabricators and jewelers. There was a small black market in small ingots and gold coins from farmers in the south and for bribery purposes in the north.

The Chinese government began to liberalize the gold market in 1994. At first, however, the liberalization was confined to the mining and refining sectors. It was only more recently that the retail sector was liberalized, making gold jewelry attractive both as an investment and as an ornament. Jewelers in Shanghai are now allowed to trade in gold jewelry at market prices, including full allowance for the design and workmanship the piece embodies. This provides a liquid market for investors.

The booming market in gold jewelry has attracted investors into the business. One Hong Kong company, the refiner RNA Holdings, recently announced plans to franchise more than 100 retail outlets in the mainland in 2002. The company cited the leap in mainland sales of gold ornaments and jewelry from 55 billion yuan in 1999 to 90 billion yuan in 2001 as justification for expansion.

Demand for gold as an alternative investment to stocks, bonds and bank deposits is set to increase when the newly established Shanghai Gold Exchange commences operations this month. Companies and rich individuals are likely to use the exchange as a way to add gold to their investment portfolios.

Individual investors have to be really worried about the securities markets and banks before they’ll start buying gold either for investment or as an attempt to protect the value of their savings. Gold holdings draw no interest, and there are costs involved in storing it and/or insuring it. So the ordinary people who are currently buying gold in China are saying something about their confidence in the Chinese economy.

Is this vote of no confidence in the Chinese economy worrying people in the government to the extent that gold-market restrictions may be reintroduced?

Chinese banks are not like normal banks, and the Chinese stock exchanges are not like stock exchanges elsewhere. Although there has been some liberalization and some move toward having them act like Western commercial banks, the main role of the four big banks is to behave as if they were a branch of the Ministry of Finance, converting peoples’ savings into loans to the government and bankrupt state-owned enterprises.

The stock exchanges perform a similar role for the state-owned enterprises, many of which destroy capital value rather than make it grow.

Reintroducing restrictions on the gold market will not solve the underlying problems that make ordinary people seek escape from stocks and other paper investments. In the last major financial crisis (1989-1990), the people of China stripped shops of everything in their desire to put their savings into something they thought would protect value, causing considerable disruption to the real economy and the financial system.

Gold’s availability for investment protects the real economy, although it does nothing to help the financial system and capital markets. Those clever enough to regard gold as a store of value are a small part of the total savings market. The financial system and capital markets must be reformed so that it makes more sense to maintain savings rather than keep gold in a safe. The availability of gold as a safety-valve investment will let those reforms take place on a more orderly basis.

Gold will always be a part of any reasonable investment portfolio. It has after all been a better investment than every major currency since World War II, as Japanese housewives know.

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