But the price of gold continues to be a very important factor in the international financial system, and the metal has also not been so driven down that it has become, like silver, a mere commodity. Consequently, gold may get extremely interesting again to investors if and when Wall Street turns nasty.

Relative to other financial markets, the bullion market is quite small. There is also tremendous pent-up potential demand from those who,like me, see compelling reasons to own gold other than a simple calculation of expected return compared with other assets, but who are for now staying out of the market because of the falling price. Given a change in sentiment, the price of gold has the potential to surge. And that is a big worry for the monetary authorities,

In Part A, I drew attention to the international effort to maintain the stability of financial asset markets, including currency markets and especially the crucial dollar:yen exchange rate. Remember also that the focus of much central bank activity is still the fight against inflation. These are the two main strategic legs of current international policy aim of achieving global market recovery before Wall Street turns nasty. The problem with the price of gold for those behind the policy is that it is a big threat to both legs. Governments are already hostile to gold, but right now they have more to fear than usual - it may be no exaggeration to say that in the world today monetary gold sits like a thermonuclear currency bomb waiting to go off.

Let's look at inflation first because this is the classic way in which the gold price shows up as a threat to national fiat currencies. A sharp rise in the price of bullion is widely perceived as a direct indicator of debasement of the currency i.e. inflation. In the United States, the fact that the general rate of price inflation as measured by the CPI and PPI remains low has been an ongoing surprise and worry to government economists and many investors. A surge in the dollar price of gold would be interpreted as the feared inflation showing up in the system with disasterous consequences for the bond and stock markets. This is the major reason that Alan Greenspan, who understands the history of gold more than most people, announced last year that action will be taken if the price of gold starts to rise. Looking secondly at the international scene, just imagine the consequences for the current effort to maintain exchange rate stability should a widely-held universally acceptable form of money, immune from government manipulation, start to soar in value against all the rest.

I do not know if the dismal performance of gold over the last three years has been orchestrated. But, as explained above, there is motive. Means and opportunity? Well, it is a relatively small market and given current disinflationary conditions and the beaten-down sentiment, gold is so weak as to be totally vulnerable to manipulation by governments and central banks. Evidence? Well, there is no "smoking gun" but there is circumstantial evidence. You do not need to go back very far to see it. Just glance at a chart of the dollar price of gold since the start of this year. Beginning the year at approximately $288/oz it remained in a narrow range until March when it started to rise, reaching about $293 by the middle of the month. This recovery was abruptly halted by the almost simultaneous announcements by Clinton and Chirac that both had decided to support the plan to sell off International Monetary Fund gold reserves. Bullion quickly fell back under $280. Another period of relative stability was followed by returning confidence and the price began to rise again, recovering almost to $290. Whereupon the Bank of England made its surprise announcement that it intended to sell a substantial proportion of its reserves, and the price again collapsed.

From our pragmatic point of view here, whether the falling price of gold reflects active manipulation or is merely gold going out of fashion along with inflation matters little. The fact is that the authorities will intervene should the price start to rise, and, at present, they do have the power to succeed.

My position on gold as a portfolio component is that the traditional advice to hold, say, ten percent as a hedge is not now appropriate. But that does not mean that the prudent investor can forget about it altogether: instead he should monitor the market, have liquid funds always available, and be prepared to jump back in if and when it becomes appropriate. It will likely get interesting again in the period after a Wall Street crash. Because of the conventional wisdom that gold is only a protection against inflation and the present extremely negative sentiment, I do not expect any immediate surge in price. But, in the conditions of currency and financial asset chaos that are expected to follow such an event I anticipate that gold will start once again to find favour as it begins to be seen - and to perform as - a stable store of value. This will then be difficult for governments to arrest: they cannot keep selling bullion reserves into high demand because if too much ends up in private hands it will become an alternative monetary system which they do not control. There is little that our authoritarian governments and international quasi-governments fear more than that.