A review of the new book "When Genius Failed"


TOKYO, Oct. 26 (Reuters) -- Gold prices may have fallen
despite a surge in oil prices, but that does not mean
the metal has lost its status as a hedge tool against
inflation, an official at France's central bank said.

On Wednesday in London, gold slid to fix at $266.80 a
troy ounce, the lowest since September 24, 1999 and not
far above the 20-year low of $252.80 marked in July
that year.

A bearish trend in bullion prices over the past two
years -- during which crude oil prices have nearly
tripled -- had prompted some gold market participants
to believe the metal is no longer considered a hedging
tool against inflationary risks.

But Herve Ferhani, foreign exchange director at the
Bank of France, disagreed, saying lower gold prices
were a sign that inflation was under control, in spite
of the rise in oil costs.

"It does have a special role," Ferhani told Reuters in
an interview this week. "It must be an inflation hedge.

"Currently, inflation is by and large under control.
And I would say that the market expects this to be the
case going forward. That is what market prices
reflect," he said.

However, Ferhani warned that a sudden change in the
market's view on inflation could not be ruled out.

"We all know that the market can change dramatically
from one day to the next," he said. "We do not exclude,
as a central bank, that such a thing might occur."

Ferhani was in Tokyo to attend a gold conference.

Crude oil prices have recently risen to their highest
level in 10 years. Light crude futures on the New York
Mercantile Exchange (NYMEX) have so far averaged about
$30 per barrel this year, against $13.40 during 1998's
price crash.

Analysts have said, however, that the recent surges in
oil prices are not likely to have a major impact on the
world economy as companies are depending more and more
on natural gas and nuclear power as sources of energy.

Data from Japan's trade ministry shows oil accounted
for 52.4 percent of the country's primary energy
sources in fiscal 1998/99, down from 77.4 percent in

Ferhani said it was not surprising that gold prices had
returned to levels recorded before 15 European central
banks announced last September a watershed accord
limiting gold sales and lending.

In reaction to the so-called Washington Agreement, gold
prices had soared to a two-year high of $338 last

"The agreement was not designed to affect the price of
gold. It was designed to make things more transparent,"
Ferhani said.

"The market up to then was not transparent enough. That
was in no one's benefit because rumors would drive the
price rather than the facts," he said. "That was not
effective any more. From this standpoint, the agreement
has been successful."

Ferhani said the euro's recent weakness was unlikely to
affect European central bank policy on gold reserves.
Currency depreciation would neither be an incentive for
banks to accelerate sales or to rethink their plans to
reduce gold reserves, he said.

"Gold sales are now covered by the (Washington)
agreement. They are executed according to the plans.
There are no excess sales," Ferhani said.

France is the world's third-biggest holder of gold
after the United States and Germany, with 3,000 tons of
reserves at the central bank.