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Gold Hits Nominal Record High Amid Sovereign-Debt Fears


Investors are concerned that the world's two main reserve currencies, the dollar and the euro, will lose value, sending them to seek the shelter of gold.

Investors are concerned that the world's two main reserve currencies, the dollar and the euro, will lose value, sending them to seek the shelter of gold.

The price of gold has reached a record level above $1,600 an ounce in trading on both sides of the Atlantic, signaling growing global concern about U.S. and European sovereign debt and the reliability of the U.S. dollar and the euro.

Although the soaring price of gold is a nominal record, it remains far below the actual record price reached in 1980. At that time, gold sold for $850, or about $2,500 in today's dollars.

Gold has been one of the world's best-performing commodities over the last decade, but the recent surge has been fuelled primarily by two factors. First, in the United States, Democrats and Republicans are deadlocked in tense talks over U.S. fiscal policy that could -- in a worst-case scenario -- result in a U.S. default on August 2.

Second, European leaders are struggling to cope with the financial crisis in Greece at a time when other eurozone countries such as Italy, Spain, and Ireland are also wrestling with debt crises. EU leaders are scheduled to meet on July 21 in a bid to hammer out a second bailout plan for Greece.

Both situations have investors concerned that the world's two main reserve currencies, the dollar and the euro, will lose value, sending them to seek the shelter of gold.

Other precious metals have soared as well. Silver was trading at $40.52 in New York on July 18, its highest price since May 4.

As for the future, expert opinions are divided. Most see a continued short-term rise to $1,650 or even $1,700 as the financial and political wrangling in Washington and Brussels continue.

However, in the longer term, agreements on these issues could burst the bubble in gold prices and leave investors with losses.

Analysts note that U.S. Treasury bonds continue to do well, signaling that investors remain confident the budget talks in the United States will eventually achieve a compromise.

compiled from agency reports
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