Gold notched up a fresh record in excess of $1,600 a troy ounce on Tuesday morning as debt crises on both sides of the Atlantic continued to dominate investors’ minds.
The precious metal has surged 8.4 per cent in little more than two weeks as fear has swept financial markets, burnishing the appeal of haven assets such as bullion.
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Gold has now set four new records in five trading sessions. On Tuesday it hit a new nominal peak of $1,609.51 a troy ounce, before softening to $1,603 by mid-morning in London after a successful Spanish bond auction gave investors some short-term relief.
Silver has also rallied more than 20 per cent since the start of the month, on Tuesday hitting $40.84 a troy ounce, the highest since its precipitous collapse in early May.
James Steel, precious metals strategist at HSBC in New York, said that investors had been left with few assets to hold as crises struck on both sides of the Atlantic.
“Taken singly, the US debt ceiling impasse or the ongoing EU sovereign debt crisis would be sufficient reason to trigger a gold rally,” he said. “But taken together, the combined affect on gold prices is even more bullish as investors, wary of dollar and euro assets, seek a safe alternative.”
Investors are bracing for a critical few days for the eurozone, with an emergency meeting of European leaders on Thursday to discuss how bondholders can contribute to Greece’s second bail-out, a move likely to trigger a default.
In the US, politicians remain locked in negotiations to raise the country’s debt ceiling by August 2 or trigger a possible default. Egan Jones, the credit rating agency, over the weekend became the first to cut its rating for US sovereign debt.
Edel Tully, precious metals strategist at UBS, said precious metals were unlikely to reverse their surge higher until politicians offered some sort of resolution.
“There is a lot of pressure on EU leaders to come up with an agreement on Greece and a failure to provide markets with the clarity and reassurance they are demanding could send gold and silver even higher.”
Gold has now rallied for 11 consecutive days, its longest run since 1980 when an oil-price spike and the billionaire Hunt brothers’ squeeze on the silver market drove bullion to its all-time record.
When adjusted for inflation, that record translates to $2,400 in today’s money. Many gold bulls believe it could be surpassed if the worst-case scenarios in the eurozone and the US play out.
