(FORTUNE Magazine) – In the minds of the bulls, Asia was the force that would pull gold out of its long decline. Asians are famously fond of gold jewelry, which they regard both as a status symbol and a hedge against hard times. In lands like Indonesia and Thailand, millions of newly prosperous consumers were going to indulge their taste for gold, driving demand off the scale and giving the metal's price a boost.

Then came Asia's currency crisis. Scratch one rosy scenario. Far fewer of those new consumers can now afford gold. In the fourth quarter of 1997 alone, demand for gold jewelry from Southeast Asia and Korea plunged by more than 50%, according to the World Gold Council.

If anything, the currency crisis has turned Asians into gold sellers. In Indonesia, for example, the rupiah lost 80% of its value against the U.S. dollar last fall, but gold declined only about 15% (and so gold jewelry shot up 50% in rupiah). Not surprisingly, cash-strapped Indonesians headed straight to the local pawnshops with their bracelets and rings. The country of 200 million has traditionally imported 15 to 20 tons of gold a month, most of it in jewelry. But since last October, some 20 to 25 tons of gold have seeped out of Indonesia every month--much of it illegally melted down into gold bars and smuggled to bullion houses in nearby Singapore.

If there's anything in all this for gold bugs to cling to, it's this: for Asians, at least, gold fulfilled its traditional role as the asset of last resort, helping to protect its holders from the disintegration of their currencies. But forget Asia as a source of new demand for gold. Asians are too busy rescuing themselves.

--Neel Chowdhury