Commodities & Futures: The wisdom of non-fashionable offerings

IT WAS about this time 1,992 years ago that three kings turned up in Bethlehem with gold, frankincense and myrrh. All three are commodities, yet only gold has a place on traders' screens. The absence of myrrh and frankincense provides a warning to those who trade commodities that are over- dependent on fashion (as diamond dealers are discovering).

Both are gum resins that were used by the ancients as valuable aromatics. Frankincense is also called Olibanum, and is extracted from the trunks of the Boswellia family found in Somalia and the southern Arabian pensinsula.

It was used by the Egyptians and Jews in religious rights and is, according to Pliny the Elder, an antidote to hemlock poisoning. The Chinese used it as medicine, but modern doctors are unimpressed by its qualities. It is now used in incense and fumigants and as a fixative for perfumes, while its hardened form is a source of spirit of turpentine.

Myrrh has had an even more demeaning fall from grace. It is an agreeably smelly gum extracted from trees of the genus Commiphora in the Near East. It used to be very valuable as an ingredient in expensive incenses, perfumes and cosmetics, and was used in medicine and embalming. It can ease sore gums, and is sometimes used in toothpaste.

Gold is unlikely to suffer the fate of frankincense or myrrh. It is more useful, and its physical attractions are less subtle and therefore more in tune with modern tastes. But it has been losing its sheen badly recently: this year has been particularly dismal.

A year ago Barclays de Zoete Wedd analysts assumed a 1992 price of dollars 370 an ounce, compared with dollars 353 then. The price has fallen to dollars 332, and no one is predicting much improvement.

Euan Worthington, mining analyst with SG Warburg, said: 'There seems little reason to expect a strong rise in the gold price in the near future.' He predicted that the average price next year will be dollars 350 and in 1994, dollars 365.

Gold's long-term problems have come from disenchantment with the yellow metal in Europe and North America, which has not been compensated for by new enthusiasm from the Far East. But the real problem this year - which Mr Worthington thinks will become more acute - is that central banks have also been falling out of love with gold.

They control about 30,000 tonnes - compared with production last year of 1,782 tonnes - so their attitude is more important than anybody else's. The Belgian central bank sold 202 tonnes in the summer, while the Canadian and Brazilian banks have also been big sellers.

Warburg fears this trend will continue, as central banks become slightly more adventurous with their investments, and cut back their cushion of gold. The banks are aware of course that as they sell they are depressing the gold price, and Mr Worthington said they would be careful not to precipitate a collapse.

But, he said, 'central bank selling could keep a lid on any significant rises for a very long time'.

Perhaps it is time to switch back to the wise men's other offerings. 'Three months frankincense' has a nice ring to it.