By Anne D. Picker, International Economist, Econoday
Monday, December 16, 2002

Overseas investors watched with care as President Bush replaced his treasury secretary, his top economic advisor and the chief to the Securities and Exchange Commission. They wondered whether the appointments represented a change of policy or just a change of personnel. Both the new SEC chair and treasury secretary need congressional clearance, which won't happen until January. Market players have plenty of time to come to their own conclusions, be they right or wrong.

Investors focused in on U.S. growth prospects and didn't particularly like what they saw. The dollar plummeted to three-year lows against the euro, even though growth prospects in Europe are worse than the United States. As military analysts pored over Iraq's extensive dossier, market players became even more edgy about the possibility of a Mideast war. As a result, gold prices shot up (safe haven) and oil prices did the same (possible supply shortage). Talk of biological warfare and the possible response by the U.S. didn't encourage investors to take risks. North Korea's announcement that it was going to start up a nuclear facility alarmed everyone. Gold prices rose to a three-year high on Friday.

Equities indexes followed here declined on the week, with the exception of the Singapore Straits Times (up a mere 0.1 percent or 1.9 points) and the Canadian S&P/TSX composite (up 1.3 percent or 87 points). The declines ranged from 0.2 percent (Mexican Bolsa) to 4.2 percent (NASDAQ). Losses were triggered when United Airlines filed for bankruptcy, souring sentiment for the rest of the week.

OPEC representatives raised quotas last week, while also asking members to cut output. The seemingly contrary move is aimed at curbing member cheating. It is no secret that members of OPEC openly flout their production quotas. This explains why OPEC was able to make seemingly contradictory decisions at its meeting on Thursday. Reducing production at this time of year - winter in the northern hemisphere - is an aggressive move. Normally demand does not start to fall until the beginning of February. It suggests that OPEC is not prepared to make concessions to the world economy, which right now is weak. An impending war with Iraq has put a floor under prices during the past year. In recent days, prices have been buoyed by a massive general strike in Venezuela, where oil production has plummeted by around two-thirds. Some 40 vessels have been stranded off the Venezuelan coast, and exports have slowed to a trickle.

For some, gold remains the ultimate safe haven when the going gets rough. Gold prices rose to a five-year high as U.S. stocks fell and the dollar weakened against the euro and yen. The weaker dollar makes the metal cheaper for buyers using other currencies. Gold futures have rallied 19 percent this year, their best performance since 1987. The third year of falling stock prices have sent investors in search of other assets. For example, monthly sales of American eagle gold coins have averaged 38,200 ounces since July, more than triple the average of 11,920 ounces during the first six months of the year, according to figures on the U.S. Mint's Web site. For some, gold is the only investment when everybody is concerned about economic conditions or what went wrong with this company or that bank.

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