Gold hits a fresh record high!
While uncertainty in the markets escalates, gold rises to historic highs as trust on paper assets collapses. It seems that cautious investors see the precious metal as an investment hedge against an uncertain future. Gold has traditionally been considered a safe haven investment as it is commonly perceived to be a reliable and valuable store of value. Investors buy the precious metal to protect themselves during political, social or economic uncertainty.
Eurozone debt problems continue to be a catalyst for the rally in gold. Greece's debt crisis has deepened and, to make matters worse, the risk of default is still alive. Eurozone debt contagion fears heightened after news emerged that Italy is feared to be the next country to follow Greece's path in seeking financial aid. In addition, worries over unsustainable fiscal deficits in the world's largest economies have also hurt investors' trust in the financial system.
Uncertainty in the markets deepened this week after credit rating agencies Moody's and Standard and Poor's put US sovereign debt on a negative outlook. The US economy is considered a safe haven for investors in times of global turmoil, but what happens when the world's most liquid sovereign market risks losing its AAA rating? Confidence in the US economy has been shaken after economic data failed to show that the world's largest economy is recovering at a strong pace. June's Non Farm Payrolls disappointed the market after it revealed that only 18,000 people were newly employed in the US during the month of June while the market expected 90,000 new jobs.
The $600 billion quantitative easing program ended in June and the US economy is still struggling to escape recession. Heightened risk aversion combining with the dollar losing its luster resulted in higher demand for gold as well as silver. But the latest rise of gold came after Fed Chairman Ben Bernanke's comments during his testimony to the Congress on 13 July. He raised the possibility of a third round of quantitative easing in the case of the economy slowing down further. The risk of further asset purchases by the Fed has shaken investors' confidence in paper money pushing gold to a higher ground.
Gold appears to defy the laws of gravity making fresh highs every day. Yesterday, the precious metal hit a fresh record high at $1594.00 an ounce from $1478.05 gaining 7.8% in two weeks. Silver also gained 13%, up from this week's $34.78 and jumping to $39.35 its highest level since its big fall in May. The correlation between gold and silver remains strong, indicating that the two metals will continue to move in the same direction. Economists expect gold to continue moving higher as investors seem reluctant to abandon their safe haven bets. Whatever happens, it is certainly an exciting time to be trading the impressive moves of gold!
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