Investors' cash grab shreds gold's safe-haven status

NEW YORK/LONDON (Reuters) - A dash for cash has overwhelmed gold's traditional status as a safe haven in times of uncertainty, putting the metal on course for its first quarterly fall since end-September 2008 when the global credit crunch was at its worst.

Money managers said on Thursday gold's outlook remains bleak as they liquidate gold positions in a scramble for the safety of the U.S. dollar at the end of a difficult year, with the fettering euro zone debt crisis causing cash markets to seize up.

"We are sitting on quite a lot of cash, I think a lot of people are," said Rupert Caldecott, chief investment officer Of the asset allocation team at Dalton Strategic Partnership, which has a total of around $2.4 billion under management.

"The bond markets are offering no help. The problem with safe havens is that they have proven not to be safe at all and the list is getting shorter. It may only be cash very shortly," said Caldecott.

Gold fell for a fourth consecutive session

on Thursday. It earlier made a tentative bounce after falling 3.5 percent on Wednesday, and it hit a fresh 2/1-2 month low at around $1,560 an ounce. Market watchers said it may take months for the metal to recover.

Investors' preference to hold cash has become evident.

"You have forced selling of gold as investors are getting margin calls and discussions of hedge funds closing. The

selling pressure is being put on the one asset that's up for the year in a notable amount, " said Mark Luschini, chief investment strategist of broker-dealer Janney Montgomery Scott with about $54 billion in assets under management .

Gold was still more than 10 percent higher for the year , even after a nearly 10 percent pullback this week.

The most recent Reuters asset allocation poll showed portfolio managers held more cash in November than at any time during at least the last seven years.

"Gold has had a bull run for 11 years. People are taking profits before the end of the year because they don't know what the new year will bring," said Axel Merk, portfolio manager of Merk Funds with $750 million assets under management.

Other money managers said a lack of monetary easing or stimulus programs by central banks in the near term has triggered its sell-off this week.

They said that gold's performance is more consistent as a hedge against inflation or currency devaluation rather than a "safe haven" in the traditional sense.

"To me, gold is not attractive right now because we don't see any inflation threats," said Jeffrey Sherman, commodities portfolio manager of DoubleLine Capital, a Los Angeles-based investment manager with $21 billion in assets.

"The risk market in general has gotten to what people used to call the 'Greenspan or Bernanke put,' meaning the central bank will prop up these markets. What you are seeing now is

that since we are not getting this support, and it's not time to own risk assets anymore," said Sherman.

BUY IT CHEAP LATER?

Some investors said the sell-off could be exaggerated, which is reflected by the resilience of holdings of the metal in exchange-traded funds (ETF).

Global holdings of gold in ETFs tracked by Reuters remain close to this month's record high at around 70 million ounces, boosted by inflows into European funds offset.

Although gold price is suffering from investors' desire for the safety of cash, the risk that this $116 billion stash of bullion could be jettisoned is slight.

"We are calling for clients to be very overweighed in cash, and that means minimally 30 percent and up to 50 percent or

even more, with the simple premise that...the problems in the

euro zone are not anywhere being resolved," said Stanley

Crouch, chief investment officer of Aegis Capital with about $2 billion in assets under management.

"We think that there is a much higher than average

likelihood of being able to buy cheaper assets in the near and medium term," Crouch said.

(Additional reporting by Amanda Cooper, Harpreet Bhal, Natsuko Waki, Susan Thomas in London; Editing by Marguerita Choy)