Gold to benefit from stock market uncertainty

BMO Global, the investment fund manager, is predicting that the recent market turbulence caused by the US sub-prime mortgage crisis could ultimately increase the price of gold.

Whilst the European central banks and the Federal Reserve have put money into the markets to prevent a crash, BMO believes that this has not altogether eased the concerns of investors.

Anxieties are continuing because it is not yet clear when the money markets will return to normal.

This is in part because a number of hedge funds, that have yet to be identified, are reported to have bought sub-prime securities by borrowing heavily from investment banks.

According to BMO, last week’s losses on the world’s stock markets did not impact greatly on the price of gold because the actions of European and US banks were expected to prevent a substantial devaluation in the US dollar.

However, the actions of the banks are likely to provide only a respite from a short-term liquidity crisis as investors and institutions cut their debt through a period of de-leveraging.

BMO is predicting that further readjustments in the value of the dollar are highly likely and that this could mean that gold prices increase significantly before confidence returns to the world’s stock markets.