The price of gold has hit new world records after it rose to $1,578.50 today, with global investors looking for a safe haven amid growing economic uncertainty.The precious metal is now set for its longest stretch of gains in nearly five years.
Traders put down the eight-day rise in the gold price to a combination of Europe’s persistent debt problems – with Italy and Ireland the latest economies to be hit by bad news.
And today it emerged that the US central bank is considering pumping more cash into the economy to avert a slide back into recession.
Federal Reserve minutes from June suggested the central bank is pondering more quantitative easing (QE), which suggest the financial authorities are pessimistic on the outlook for the world’s biggest economy.
The Fed's QE programme has been one of the key drivers for the gold price over the last year as it kept US interest rates and the dollar low, giving bullion, which bears no yield of its own, more of an edge in the competition for investor cash.
Meanwhile, European Union leaders are expected to hold an emergency meeting on Friday after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts and stop contagion spreading to Italy and Spain.
'It's a pretty well-trodden safe-haven story. While the issue has been bubbling away, it hadn't been acute enough to drive people into the strongest safe-haven. That situation has clearly changed in the last couple of days,’ said RBS analyst Daniel Major.
'In the last few days, risk-aversion has been strong enough to offset the strength in the dollar, but it will really depend on how the macro events pan out as to whether gold can be carried higher or not,’ he said.
As well as the price of the metal itself, holdings of gold in exchange-traded products witnessed their largest daily inflow since early April, driven by a hefty rise in holdings of metal in the SPDR Gold Trust , the world's largest gold-backed exchange-traded fund.
Adding to worries about the euro zone debt crisis, Moody's cut Ireland's sovereign rating to junk status and warned of the likelihood of Dublin needing a second bailout, a week after it cut Portugal to junk and issuing a similar caution.
'With European sovereign debt fears intensifying again, little clarity on what Eurozone officials intend to do next and cross-asset market confidence taking a bashing, gold has been a beneficiary, much like the Swiss franc. And in this nervous environment, we prefer assets that have limited downside exposure - i.e., gold over other precious metals and commodities,’ said UBS strategist Edel Tully.
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