With many concerns around Europe about sovereign debt and a stronger dollar, gold is emerging as a powerful commodity once again. It is beginning to garner high rates in Sterling and Euro and increasing its appeal in insurance and investment terms.
With a spotlight falling on the current financial woes faced by Greece, a host of investors dealing in Euros have opted for Euro-priced gold bullion instead. Sterling gold (gold priced and then bought and sold in Sterling) has also seen a rise, perhaps due to the rumours that the forthcoming UK election is likely to end in a hung parliament which will make it more difficult for the government to attempt to solve British debt. This Sterling gold increase is now at an unprecedented £759.86 per ounce.
In fact with the dark clouds of sovereign debt growing heavier and heavier thoughts are leaning towards Dollar-gold actually maintaining strength even though the Dollar itself is also strong, something that usually has an adverse affect on Dollar gold. Phillip Klapwijk, chairman at GFMS a leading precious metal consultancy group, told Reuters, “Gold is holding up very well given the foreign exchange market movements, and you have to ask why that is. Sovereign debt is very high up the agenda at the moment.”
Recently the Dollar has gained an increase of almost four percent over the Euro, with suspicions pointing to money worries in Greece, Spain, Portugal, Italy and Ireland as being a factor in this increase. However, in the same time, spot gold was higher than $1,115 per ounce, which is less than $1,226.10, the peak it reached last year, but still higher than $1,096.25, the figure we started with in 2010.
The big issue still lies with the threat of rising sovereign debt. Earlier this year the WEF (World Economic Forum) highlighted that a full on debt crisis was the main source of worry for 2010, due to faltering government finances around the globe. Predictions suggest that America could this year see its fiscal deficit hit heights of $1.56 trillion, whilst over in Japan their debt level is approaching 200 percent of GDP.
A recent poll of strategists conducted by Reuters showed that the Euro is set to plummet even more against the Dollar. Where this would previously have brought gold down too, currently this is not the case. What was once a strong link, gold-Euro, has now dwindled.
Gold is continuing to gain strength in the face of weak currencies. Peter Hillyard, head of metal sales at ANZ Bank, said: “People have real fears about what is going to happen in Greece and Spain and the effect it is going to have on the Euro, and they are saying the only thing that is safe and secure is gold, whether that is foolish or not, it is current thinking.”
Recently, the famed, yet bleak, economist Marc “Dr Doom” Faber also advised, albeit in a gloomier manner, that gold was the safest form of investment in the current climate. Nick Bullman, managing director of Bullman Investment Management give a similar interpretation: “Long-term investors are beginning to realize that gold is the only thing that is going to protect you from governments who decide that the way out of this problem is to borrow more.”
However gold bullion is by no means a foolproof way of securing financial future, nor is it without its detractors. Some experts suggest that other precious metals, like platinum, may also be in line for a spike, and that gold itself has a tendency to flip-flop. Then there are is also the manner in which gold is mined, accusations fly of farmers in third world countries having their land destroyed and water contaminated by gold mining companies.