Gold No Longer A Hedge In Times Of Turmoil

Sydney Morning Herald

Saturday February 21, 1998

LEEANNE BLAND

With the possibility of a war in the Gulf growing more likely each day, stockbrokers are turning their minds to what this will mean in the markets.

As a general rule, a short-term, localised conflict would have a good effect on world stockmarkets. On this brokers agree.

But their opinions are divided when it comes to what another war in the Gulf will mean to markets.

Peter Struk, a broker with Reynolds & Co, doesn't think conflict in the Gulf will have much of an impact on sharemarkets, as long as it is not drawn out.

"The effect on the sharemarket really depends on how far it escalates," he says.

"If it is only for a very short period of time it might have a short-term effect, but only for a few days."

Andrew Sekely, a broker with Intersuisse, is definite that a localised war will not have a negative effect on world sharemarkets.

"War is not the worst thing in the world [for sharemarkets]," he says.

But he thinks there will be one important difference this time around. That is that gold will no longer continue to be the hedge commodity that it once was in times of strife.

"This was not the case in the Iran and Iraq war and it was not the case in the last Gulf War."

Glen Castinson, manager of the listed area with Godfrey Pembroke says: "If it is resolved quickly, the conflict in the Gulf will be positive for markets."

But he adds: "If it becomes drawn out, it will have a negative effect."

Michael Heffernan from Shaw Stockbroking says: "The US market goes up when the President flexes his muscles."

He doesn't think it will be any different this time around.

He says a war with Iraq will definitely affect oil stocks.

But he is not so sure of the flow-on effect on the Australian market. "It would flow on in some respects, but the economic slowdown and the currency crisis in Asia as well as the crisis with the banking sector in Indonesia will have a much larger affect on the [Australian] market . . . than will a two-hour Iraqi war."

He says the Asian problem will be with us for some time.

He speculates: "If there was an outbreak of hostilities [in the Gulf] the impact would not last for long."