LONDON, Sept 24: Gold prices leapt here on Tuesday to their highest level since June, as investors continued to bail out of stocks in search of a safer haven for their investments amid a mounting threat of a Middle East war.

On the London bullion market, gold was fixed at $326.30 per ounce, a gain of $3.8, or 1.2 per cent, on the day.

The latest rise came as stocks sank on worries over the weak outlook for economic activity and corporate profits, and heightened tensions between Iraq and the United States and her allies.

Howard Patten, precious metals analyst at Barclays Capital, said slumping stock prices were the main driving force behind higher gold prices.

“Primarily what people are looking at are the equity markets and we’re still continuing to see weakness in those markets,” Patten said.

European and US stocks sank Tuesday to levels not seen since the mid-1990s.

Patten said geopolitical worries had no doubt prompted some additional speculative demand, but he went on to warn that gold rose sharply before the 1991 Gulf War only to fall back after the outbreak of hostilities.

Earlier on Tuesday a leading commodities consultancy said world gold mine production was set to drop by three per cent in 2002, the first fall since 1995, while depleting reserves and falling production could lead to a longer-term decline in output.

In its half-yearly report, the London-based Gold Fields Mineral Services (GFMS) group said global mine production fell by 63 tons or five per cent in the first half of the year to 1,216 tons.

Patten said the report indicated the market was not in as strong a position as the recent rise in prices would suggest.

“There’s a problem with demand and the GFMS report really admitted that the... key fundamental driver remains the producer activity and the lower hedge positions and the very active reduction of these hedge positions,” Patten said.

GFMS said producer de-hedging — the unwinding of forward sales — is estimated to have contributed a record 232 tons of demand in the first half of this year, against 35 tonnes in the year-earlier period.

The report said producers were de-hedging because prices were higher on the spot market than the futures market, gold companies were optimistic about the outlook for prices and shareholders were pressing for the move.

Gold prices were forecast to stay above $300 per troy ounce in the second half of 2002, as investors look to protect their money during times of global uncertainty, GFMS said.

It estimated that gold prices would average $316 per ounce in the second half of 2002, within a range of $300 to $330, but said the market could see volatile movements if investors became disenchanted with the metal’s reputation as a haven.

“The market is in some ways quite finely balanced. But we could easily see investors upsetting this, especially if Middle East tensions worsen, or a major economic shock occurs,” Philip Klapwijk, GFMS managing director, told delegates at a one-day precious metals seminar in London.—AFP/Reuters