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Gold may reach new high amid fears of double-dip recession
Analysts claim bullion could hit $1,430 an ounce
Precious metal is popular hedge against rising prices
Gold prices may smash records in 2010 as investors look to protect their wealth with an asset that holds its value. Photograph: Getty Images
The gold price could smash new records as investors pile into bullion on fears of a worsening economic outlook. The spot price today flirted with the all-time high of $1,264.90 (£838.93) reached last week.
"Debt on government balance sheets and worries that the world could be heading towards a double-dip recession are driving the gold price higher," says Charles Cooper at Oriel Securities.
The World Gold Council (WGC) says gold is being buoyed by interest across the board: private investors are buying increasing quantities of gold coins and bars, shareholders are deepening their exposure to gold-mining companies and central banks are buying bullion on the open market.
Marcus Grubb, the WGC managing director says: "The backdrop is the continuing financial crisis and people's desire to protect their wealth by investing in something that they believe is going to hold its value."
French bank Societe Generale forecasts that gold could reach $1,430 an ounce in the third quarter of this year with many analysts predicting that the precious metal's rise will continue into 2011.
Some investors fear the world could be heading into a second leg of the financial crisis with the European banking system at risk from debts racked up in southern European countries such as Greece, Portugal and Spain. "There is concern that governments around the world could resort to printing more money to dig us out of a hole," says Cooper. "That could precipitate inflation, good for gold which is used as a hedge against rising prices."
In the City, gold-backed exchange traded funds are reported to be accelerating their purchase of gold to satisfy mounting investor demand. Today, the gold price closed in London at $1,247 an ounce, but still a long way shy of the inflation-adjusted high of $2,200 in 1981. The WGC says that Saudi Arabia, China and Russia have been buying gold, while western European countries have stopped selling bullion after years of being net sellers.
China recently disclosed that it was holding 1,000 tonnes, double earlier estimates. The US central bank is the biggest holder of gold with more than 8,000 tonnes.
Adding to the bullish backdrop for the metal were comments from US intelligence officials that Iran has enough fissile material for two atomic bombs. Gold is the investment of choice during times of geopolitical uncertainty.
The falling euro reinvigorated the safe-haven sweep into both the dollar and gold, prompting the two to move in tandem. That is a break with tradition as gold usually falls as the dollar strengthens, but that link has been broken.
"The underlying safe-haven concerns that have supported prices the economic environment, Europe's fiscal outlook and the longer-term prospects for inflation, remain," said David Moore, commodities strategist at Commonwealth Bank of Australia.
Analysts claim bullion could hit $1,430 an ounce
Precious metal is popular hedge against rising prices
- Richard Wachman
- guardian.co.uk, Monday 28 June 2010 19.12 BST
Gold prices may smash records in 2010 as investors look to protect their wealth with an asset that holds its value. Photograph: Getty Images
The gold price could smash new records as investors pile into bullion on fears of a worsening economic outlook. The spot price today flirted with the all-time high of $1,264.90 (£838.93) reached last week.
"Debt on government balance sheets and worries that the world could be heading towards a double-dip recession are driving the gold price higher," says Charles Cooper at Oriel Securities.
The World Gold Council (WGC) says gold is being buoyed by interest across the board: private investors are buying increasing quantities of gold coins and bars, shareholders are deepening their exposure to gold-mining companies and central banks are buying bullion on the open market.
Marcus Grubb, the WGC managing director says: "The backdrop is the continuing financial crisis and people's desire to protect their wealth by investing in something that they believe is going to hold its value."
French bank Societe Generale forecasts that gold could reach $1,430 an ounce in the third quarter of this year with many analysts predicting that the precious metal's rise will continue into 2011.
Some investors fear the world could be heading into a second leg of the financial crisis with the European banking system at risk from debts racked up in southern European countries such as Greece, Portugal and Spain. "There is concern that governments around the world could resort to printing more money to dig us out of a hole," says Cooper. "That could precipitate inflation, good for gold which is used as a hedge against rising prices."
In the City, gold-backed exchange traded funds are reported to be accelerating their purchase of gold to satisfy mounting investor demand. Today, the gold price closed in London at $1,247 an ounce, but still a long way shy of the inflation-adjusted high of $2,200 in 1981. The WGC says that Saudi Arabia, China and Russia have been buying gold, while western European countries have stopped selling bullion after years of being net sellers.
China recently disclosed that it was holding 1,000 tonnes, double earlier estimates. The US central bank is the biggest holder of gold with more than 8,000 tonnes.
Adding to the bullish backdrop for the metal were comments from US intelligence officials that Iran has enough fissile material for two atomic bombs. Gold is the investment of choice during times of geopolitical uncertainty.
The falling euro reinvigorated the safe-haven sweep into both the dollar and gold, prompting the two to move in tandem. That is a break with tradition as gold usually falls as the dollar strengthens, but that link has been broken.
"The underlying safe-haven concerns that have supported prices the economic environment, Europe's fiscal outlook and the longer-term prospects for inflation, remain," said David Moore, commodities strategist at Commonwealth Bank of Australia.
