The gold price today hit a record high of $1,590/oz amidst darkening portents for the economic future of both the USA and Eurozone. Though gold is priced in dollars, record highs were also reached in sterling, the euro and the South African rand.
This sharp increase after a period of steady growth appears to have been sparked by fresh uncertainties around proposals to increase the ceiling for US debt borrowing – the Democrat Party of President Obama and their opponents the Republicans have yet to agree on whether the ceiling should be raised.
There is additional disquiet about the dim prospects for a solution to the continuing Eurozone crisis – Greece was downgraded deeper into junk territory, whilst Italy is increasingly under the spotlight as a potential disaster area. As an analyst at Barclays Capital put it; “Gold flourishes when there is uncertainty on the macro side, and across the globe there are quite a few problematic hot spots”.
It therefore comes as little surprise that gold has become the beneficiary of such uncertainty. Gold is almost ubiquitously seen as a safe haven and store of value against paper currency and other investments. It is almost universally expected by market watchers that gold will reach the target of $1,600/oz soon. Perhaps the most prescient analysis was made by Michael Widmer of Bank of America Merrill-Lynch; “Gold will keep rising for the next five years, even if it has some crests and troughs”. Should this be the case, then a popular appetite for gold can only increase.