Flaring Debt Fears Propel Gold Prices – Gold soon to set record

As the Euro zone debt crisis flares fears among the consumers, gold hits a record high level emphasizing the fact that it is a safe haven for most investors. The much talked-about credit downgrade and the raising of the debt ceiling are the 2 most happening financial events that have had a global effect on the world economy. The US government is drowning in a sea of national debt and so are the consumers. However, with the debt ceiling being raised, Obama has promised to lower the spending floor of the government so that there is an immediate recovery within the nation.

Apart from the debt crisis in the US, the sovereign debt fears in the Euro zone fumed the worries about the global economy sleepwalking into yet another recession. However in the month of October, as the equities gained strength after the fresh new efforts of the European government to resolve the debt crisis, gold headed for its biggest weekly gain that has been ever recorded. Although the rare metal gained in value, trading was slow after the release of the non-farm payrolls which clearly shows that the world’s largest economy is recovering gradually and is not slipping back into a double-dip recession.

In the very first week of October, 2011, gold gained 1% to reach a high of $1,665.99 an ounce and stood at $1,659.10, up by $9.85. Bullion has already hit the record of $1,920 in early September, 2011. According to most recent reports, the number of jobs that are created within the economy influences the value of the currency and therefore it also indirectly influences the price of gold. The payroll numbers may jostle the prices of metals only if the level rises above the expectations of the financial analysts. The bullish trend of the gold market will rest on factors like recapitalization of the European banks, number of payrolls generated and also on slow economic growth.

The physical sector where gold is bought physically by the jewelers was also abuzz with lots of activity after the prices went through record high levels. Steady purchase of gold by jewelers and investors across Asia led to a tight supply of god bars in Hong Kong, Singapore, keeping the premiums at a high level since February, 2011. The premiums must stay high for a certain period of time and the present ones are as high as $2-$4 for immediate delivery of the metal. You may get gold bars at premium rates of $2 but you may have to wait for a long period of time.

Gold gains also come as the European stock future rose following a bounce in the Asian shares and the euro also saw gains from a 2 cent-rally after the euro zone policy makers shored up struggling banks in order to fend off a financial crisis. As the euro tumbled on worries of the debt crisis, the gold bullion jumped to a record level last month but as soon as the equities plunged, most investors sold off this metal to cover the losses, thereby lowering the price.

Therefore, the nervousness of the US economy, followed by the constant debt fears within the European economy is the main factors that are pushing up the price of gold. If you’re an investor, don’t forget to diversify your portfolio and invest in god as there’s nothing better than having a safe haven that can act accordingly in all kinds of economic conditions.

Rick Murphy
Market Analyst and personal finance writer