Gold hits latest record high on recession fears

AP, Friday 19 Aug 2011

The precious metal rises to near $1,830 an ounce as investors seek big returns and presumed safety from turbulent financial markets

Gold bars
Gold, the ultimate safe haven? (Photo: Reuters)

The price of gold hit its latest record high, near US$1,830 an ounce, as investors spooked by the prospect of a return to recession sought out safety Thursday in the precious metal.

Gold prices have more than doubled since the recession began in late 2007. They've risen about 19 per cent since the beginning of June, as European leaders struggled to keep the debt crisis from infecting the region's major economies and U.S. politicians nearly drove the country to the brink of default, prompting Standard & Poor's to cut the country's AAA credit rating.

Morgan Stanley on Thursday cut its forecast for global economic growth for this year and 2012, saying the U.S. and the 17 countries that use the euro were "hovering dangerously close to a recession." While gold has hit a series of record highs over the past 2 ½ months, the Standard & Poor's 500 has dropped about 15 per cent, while the dollar, a traditional safe haven during periods of market turbulence and fear, is flat against a group of six major currencies.

The metal's value, unlike that of a currency, doesn't depend on the health of a single country's economy. Its swift rise has made it popular with investors seeking big returns, as well as presumed safety from turbulent financial markets.

Gold for December delivery, the most-traded futures contract, settled at $1,822 an ounce, up $28.20, or 1.6 per cent. Earlier Thursday it hit $1,829.70 per ounce, a record high.

The metal's price could go higher. BofA Merrill Lynch commodities analyst Francisco Blanch on Thursday raised his price target for gold to $2,000 an ounce. Just a week ago, he'd set a $1,700 target. He cited the trend of central banks in emerging countries switching more of their currency reserves into gold.

"Physical gold is the ultimate collateral because it has no credit risk," Blanch wrote in a note to clients.

Purchases of gold by the world's central bankers more than quadrupled this April through June, compared with a year ago, said the World Gold Council.

President Hugo Chavez of Venezuela said Wednesday that he planned to nationalize the country's gold industry and convert to international reserves. Venezuela will also bring home its $11 billion in gold reserves currently stored in U.S. and European banks.

Chavez's plan alone shouldn't have much effect on gold's price, said George Gero, vice president at RBC Global Futures in New York.

"Venezuela's not a major gold producer. This gold has already been mined, stored and allocated wherever they're holding it. It's not changing the markets." But Venezuela's move to nationalize its gold industry could have a "psychological impact" on gold prices, Gero said. If investors fear that other big commodity exporters in South America will follow in Venezuela's footsteps, possibly limiting exports and constricting the supply of the metal in world markets, that could boost the price.

And that's going to affect consumers. The metal is more than just a currency substitute or an investment opportunity. It's also a material used in industrial products and by consumers. With every fresh high the metal notches, the more consumers will have to pay for engagement rings and gold crowns for their teeth.

Big U.S. jewelry chains already raised prices this summer, citing the rising costs of gold and diamonds.

Despite gold's big run-up, it remains below its 1980 peak when adjusted for inflation. Then it was worth $850 an ounce, or about $2,400 in 2011 dollars.

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