Gold offers safe haven amid global economic uncertainty

Merrill Lynch Investment Managers (MLIM) believes the market conditions for gold are the strongest seen for years, with a combination of political and economic factors likely to create sustained demand in the months ahead.

The price of gold rose above US$300 an ounce in February for the first time in two years, and has already appreciated by 13 per cent since the middle of last year and 7 per cent since the start of this year.

Evy Hambro, manager of the MST World Gold and Mining Fund at MLIM, said: 'For investors, the world is an unstable place compared with a year ago. A combination of the United States' largest corporate failure [Enron], the largest debt default by a sovereign state [Argentina], the continuing war on terrorism and financial scandals, such as fraud at Allied Irish Bank, have made investors nervous of paper assets. Investors see gold as a safe haven.

'These worries are especially prevalent in Japan, where 12 years of declining stock markets have affected consumer confidence - not helped by the Government's recent decision to withdraw guarantees on deposit accounts.

Mr Hambro said that with an estimated US$4.5 trillion in these accounts, if even a small amount were re-invested in gold, it would have a powerful impact on gold markets. The Japanese reputation for saving and caution could also result in a significant boost in demand for gold.

In general, he said the outlook for gold remained positive.