investors buying commodity futures, because they could profit from a socalled roll - yield. this yield can be interpreted as a risk premium priced into the futures contract to compensate the holder for bearing the commodity price risk. however, if the number of investors ready to bear this risk increases significantly, the risk premium could disappear or even turn negative. in fact, for some time now, the near - term structure of many commodity prices has experienced a change from backwardation to contango. it seems to me, there may well be a connection between this change from backwardation to contango and the growing trend to invest in commodity futures. contrary to other commodities, gold has typically been in contango. the reason is that there is plenty of gold around and plenty of market participant - including central banks - willing to lend it. as a consequence, gold lease rates are usually lower than usd interest rates and gold futures prices higher than spot prices. the roll yield is thus negative, which is one of the reasons why investment in gold futures did not generate the same returns as investments in broad commodity future price indices. so what return should we expect from investing in gold? history shows that gold has been able to keep its value in real terms, but compared to bonds or equities, no real return has been realized ( graph 2 ). for instance, metals economics group ( 2005 ) estimates that expenditures for commercial nonferrous metals exploration increased from a 12 - year low of usd 1. 9bn in 2002 to usd 5. 1bn in 2005, a level just slightly lower than in 1997, when expenditures were at their highest level. source : watson wyatt in gfms gold survey ( 2006 ). graph 2 : cumulative returns on gold, bonds and equities in usd since 1871 us equities : 7. 1 % p. a. us t - bonds : 4. 6 % p. a. gold : 2. 5 % p. a. us cpi : 2. 4 % p. a. 1871 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 fourth argument : gold mine hedging is " passe " as you know, in the second half of the 1990s, gold mines increasingly sold their future production on a forward basis. in doing so, they pushed up gold supplies by more than 10 % per year, thus reinforcing the already negative price trend. as from 2001, mining companies increasingly abandoned this type of price hedging

to save and consume more, which should be reflected by an increased demand for gold. on the other hand, as financial markets and banking systems become more developed and more secure in today ’ s emerging economies, the palette of alternative saving vehicles will increase and we should expect the relative proportion of wealth invested in gold to decrease. in other words, we might expect the income effect to be strong at the beginning before receding and giving way to the substitution effect. conclusions despite the demonetisation of gold, the yellow metal continues to have a special significance for central banks. unlike currencies, the value of gold does not depend on a national sovereign. moreover, payment transactions with gold are fully under a central bank's control. these are two important reasons why gold, more than any other type of investment, serves to ensure the capacity to act in extreme crisis situations. from an investment viewpoint, the price of gold often moves in the opposite direction to other financial assets, in particular to the us dollar. the price for this'insurance function'is reflected in the fact that gold is less profitable in the long term than other financial assets. it is not surprising that switzerland, a small open developed country with a highly integrated financial sector and an ageing but relatively wealthy population, continues to invest a significant proportion of its reserves in gold. at present, the snb holds 1, 290 tonnes of gold or roughly 30 % of its assets. price fluctuations in both directions are to be expected and may be strong and sustained. as was the case in the past, such price fluctuations will modify the proportion of gold on our balance sheet from year to year. these short - term fluctuations should not give rise to great concern. experience has shown that extreme movements in markets tend to level out in the long run.