By: Mike Campbell
Gold has always been the refuge to go to in times of economic worries and doubt. Its value has been imprinted deep into the human psyche since antiquity and the metal has intrinsic worth, finding myriad uses from jewellery through to space exploration.
Concern about the downward trend of the US Dollar has been credited (at least partially) with the current strength of gold which closed at a new historic high of $1173.5 per ounce. The value of gold sat at about $640 an ounce in the summer of 2007, near the height of the last economic cycle; so anybody that read the tea leaves correctly and switched from stocks to gold as the economic storm hit will have made a killing.
The fragile global recovery means that central banks, including the US Federal Reserve, have indicated that interest rates will have stay low to support businesses and fuel economic growth. The opposite side of this coin is that it makes holding the US currency less attractive in terms of the return on investment. Analysts believe that the value of gold will continue to appreciate over the coming weeks – if not longer.
The €/$ value in June 2007 was 1.3365. At the close yesterday, this pair was trading at 1.4968; a decline of 12%. Some emerging markets are currently diversifying part of their foreign exchange holdings and buying gold which also pushes the price higher because of increased demand. Other players are moving into commodities such as oil, but this may backfire if economic demand stays weak due to an anaemic recovery (remember that crude is at roughly half of its peak value right now).
Dollar Doubts Send Gold To New Record High
DailyForex.com