Gold's safe haven appeal grows as equities wobble

Singapore: Gold is likely to be a rare star in the dimming financial firmament, attracting investors anxious to protect their portfolios from the crisis in equities and other assets.

Gold surged five per cent on Monday, after US lawmakers rejected a $700 billion plan to lance the toxic debt boil, sending other markets including oil and US equities reeling.

The current market strife is a breeding ground for gold bugs - investors fascinated by the precious metal - but analysts caution that gold could lose its traditional safe-haven appeal if the US manages to pull together a financial markets rescue package.

"This market looks like a paradise for gold bugs, but you need to be careful. In the next three or four weeks, weak equity markets will drive safe-haven activity, but it could pass quickly," ANZ's senior commodities analyst Mark Pervan said.

He added gold could challenge a record high of $1,030.80 struck in March.

Spot gold drifted lower to $900.90, down 0.3 per cent at 0410 GMT.

Commodities had been star performers this year but spot gold, up eight per cent since January, ranks as one of the few that has managed to hold onto some of the gains as worries about sliding demand drag on everything from industrial metals to palm oil.

Gold's sudden popularity is clear - holdings by the New York's SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, jumped by around 30 tonnes on Monday, the second-biggest one-day rise ever.

Total holdings jumped to over 750 tonnes - about a third of global gold mine output - and have climbed around 130 tonnes since mid-month.

"As long as this uncertainty in financial markets continues, it will provide strong support for gold, while the long-term implications of the bailout should weaken the dollar," said Toby Hassall, analyst at Commodity Warrants Australia.

"Currencies are going to be volatile and some people will think holding gold is a better alternative than paper currency."

The dollar hit a four-month low against the yen, but the euro and sterling suffered as banks in Europe fell prey to the crisis.

"The gold market is telling us that the world economy is in peril," said Jeffrey Nichols, managing director of American Precious Metals Advisors.

"In the short run, any meaningful policy response that reduces fear and anxiety could trigger a correction in gold - but, longer term, whatever happens, gold is almost certainly moving higher," he said.

He added bullion could break the $1,000 an ounce level and set new highs in the next few months.