Gold may have lost its lustre, but retains its attraction as a safe haven in times of turmoil

Once, investment strategists would have had an additional asset class to build into their allocation models. Gold used to be taken very seriously as an investment. As recently as 1988 my colleagues and I thought it carried sufficient investor appeal to launch a fund, the main aim of which was to profit from the fluctuations in the gold price. I doubt we would get such an investment off the ground today.

The news earlier this week that one of South Africa's largest mines had been mothballed brought into sharp focus how poor the recent performance of gold has been.

It was not a good week for gold all round. Australia announced a massive reduction in its reserves. This follows fairly hefty sales from eastern European governments, anxious to finance their restructuring, not to mention destocking from developed countries. Then there is the risk that Germany might use gold to help it reach the Maastricht criteria for EMU. We need more buyers.

Which is where we hit problems. Gold has industrial uses and remains the cornerstone of jewellery manufacture. But governments have been the biggest buyers - and investors seeking a safe haven in times of turmoil.

We're short on turmoil these days. The collapse of the Soviet Union has led to a decline in tension, whilst fewer spats in the Middle East have also reduced the demand for gold. Even the Chinese seem to have lost their appetite.

Is this the end of the road for gold as a serious investment? Speculators clearly think so. It seems traders could be short of as much as 8 million ounces in the commodity markets.

The belief is that central banks will never again return as large-scale buyers. The financial markets are, after all, reasonably secure these days.

Financial assets, as a consequence, look the best bet for the future. And financial assets pay dividends, unlike gold.

Do not forget, either, that investors look backwards when choosing where to place their money. Gold has been a poor home for cash for the past 15 years. The FT Gold Mining Index is down 50 per cent from its peak.

But things could change. First of all, government-inspired selling is not universal. India, Japan and other Far Eastern countries continue to mop up the odd ingot or two. Indeed, Japanindicated recently that it might lose its appetite for US Bonds, leading to speculation that gold is perhaps the only available alternative.

It may be that we need another serious conflict to restimulate interest, but it is too early to write off gold as a serious asset class. Geoff Campbell, one of the team that runs the Gold and General Fund at Mercury Asset Management, does not believe that gold is finished. This fund is 80 per cent invested in the companies that deliver it onto the world market.

Investors concerned that financial markets have scaled unsustainable heights might well tuck away a gold investment. And many think that it is not all over yet.

Brian Tora is chairman of the Greig Middleton investment strategy committee and may be contacted on 0171-655 4000