Gorby's Back But Some Traders Are Still Shaking

No one can blame traders for being wrung out following the market's coup-induced panic attack. But for those swapping gold and oil, the high anxiety remains far from over.

The Soviets don't have much the world wants right now--except hydrocarbons and gold. And traders of those commodities are going crazy trying to figure out the Soviets' next move. To judge from the markets, their guess of the moment is that while Soviet oil and gas production won't collapse altogether, the hard-currency-hungry central government soon will boost sales of gold. That briefly sent the dollar surging as the safe haven of choice.

BAD-NEWS BULLS. Not so stocks (charts). Word of the Aug. 19 coup clipped 70 points, or 2.4%, from the Dow Jones industrial average. Frankfurt plummeted 9.4%, and Hong Kong's Hang Seng index dove 8.4%. "When in doubt, the first impulse is to get out, and there was a panic reaction in the Far East when the news first came out," says Michael Metz, chief investment strategist at Oppenheimer & Co. "In New York, we had 12 hours to react, and the more you thought about it, the less severe you realized the impact of the coup would be." Given time to ponder the implications of the coup, virtually every stock market gained back some of its loss. In the U. S., the Dow edged up 0.5% on Aug. 20, and then, with the news of the coup's failure and Gorbachev being freed, surged to close up 3%.

The gyrating market in Treasuries wasn't much of a shelter from the storm. Short-term governments rallied, but the benchmark 30-year U. S. Treasury bond lost a quarter-point in price on Aug. 19, pushing yields from 8.08% to 8.11%. The following day, however, the bad-news bulls ran again, and the long bond gained back a quarter-point in price. The news of the coup's failure ended the flight to quality in the short end of the bond market and sent prices up on the long bond. "Now it's back to business as usual," says Anthony R. Jiorle, a quantitative specialist for Vanguard Group.

The dismal performance of gold in this time of crisis confirmed that the precious metal's reputation as a safe haven is fading. Rather, the dollar assumed gold's traditional mantle as the safest repository of value when world affairs are especially hairy. The greenback gained 3.4% against the German mark on Aug. 19, even with central bank intervention from Britain, France, Germany, Italy, and Japan. But after the initial panic, and the failure of the coup, the dollar gave up its gains. Gold, which barely moved on Aug. 19, dropped $2.70 the following day, sinking below its pre-coup levels.

Where's the customary spike? Explains Paul Hopkins, head of international equities for London-based Kemper Investment Management Co.: "The risk of Russia having to sell gold to get hard currency probably offsets the benefit to gold prices of the uncertainty." The need for hard currency has already caused the Soviets to make major sales of platinum in recent months.

IMMEDIATE WORRY. The story behind oil's moves right after the coup is similar but less straightforward. At first, oil sprinted up more than $1 a barrel, to $22.45 a barrel, then eased 20~ the next day. Home to vast reserves of crude, the Soviet Union is the leading producer of oil and natural gas and a big exporter of oil. Soviet oil production has been declining steadily for years, and analysts note that if conditions deteriorate further, Western nations might wind up even more reliant on OPEC. The immediate worry when news of the coup came out was labor-related: If the Soviet oil industry were to go on strike, and crude exports were shut down, the disruption to world markets could easily have rivaled that following Iraq's invasion of Kuwait a year ago.

In the past, however, the Soviets have worked hard to keep up exports to the West, notes Adam E. Sieminski, a Washington-based energy analyst for County NatWest USA. Regardless of who is in power, a program to revitalize the oil sector will be a high priority. "The only thing that they could sell in world markets is oil and gold," says Sieminski. That plain fact, together with the Soviets' increasingly dire need for hard currency, figures to make the oil and gold markets more and more hazardous.

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