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Gold breached the $1,500 an ounce threshold on Wednesday as gold's appeal as a shelter from risk increased.
Reuters reported that spot gold hit a high of $1,505.21 an ounce and was bid at $1,505.16 an ounce at 5:42 a.m. ET, against $1,493.90 late in New York on Tuesday.
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The yellow metal hit a high of $1,500.70 an ounce in Hong Kong trade.
Gold's rise was also coupled with Silver hitting a 31-year high at $44.56 an ounce and was later bid at $44.51 against $43.89.
The increase in price of Gold and Silver seems inevitable now and analysts point out the following facts.
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S&P's revision of America's credit rating:
Standard & Poor's recently threatened that it will downgrade United States AAA rating due to the high budget deficit. Reuters quoted Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, who said that the downgrade could result in "wholesale abandonment of dollar assets and would potentially destabilize the entire global economy."
In such a scenario, where dollar assets seem to be losing their sheen, gold shines as good store of value.
Fears of weakening dollar:
Bloomberg reported that the dollar slipped 0.8 percent against six major currencies trading at a 16-month low. The weakened dollar has lent support to gold prices. Reuters reported that weakness in dollar boosts gold's appeal as an alternative asset. Also US Federal Reserve and central banks across Europe have attempted to deal with the debt crisis by pumping more paper money which will further decline the value of currency and increase the value of gold and silver.
According to Daily Markets analyst Michael Snyder, a sustained increase in gold and oil indicates that the dollar is on the decline. Synder wrote: "... when these commodities go up in price it is a sign that the U.S. dollar is dying and that our country is getting closer to economic collapse." He further elaborates that gold and silver price hike indicates that investors are losing trust in dollar and US treasuries.
No alternative currency:
In spite of the trillion dollar deficit which has created a lot of new money, the US dollar has still been the reserve currency as there is no alternative currency. Tom Simons, a money market economist at Jefferies & Co. in New York, told Reuters: "One of the reasons why the U.S. dollar is still the reserve currency is the lack of other options, and in two years there may still be no other options." In such a scenario, dollars' value is obviously eroding while gold and silver appear as more stable form of investments.
Higher Inflation:
