Fears about debt send gold price to record By STAN CHOE - AP
Business Writer | AP – Tue, Jul 19, 2011
NEW YORK (AP) — Gold's reputation
as a safe place for your money sent it above $1,600 for
the first time.
Investors are worried about debt problems
on both sides of the Atlantic. So they bid gold up $12.30
an ounce Monday to settle at $1,602.40. That's a record
for the market price for gold, but below its 1980 peak after
adjusting for inflation. An ounce of gold at that time cost
$850, or about $2,400 in today's dollars.
Gold is looking better by the day because
debt problems in the U.S. and Europe are making two other
so-called safe havens, the dollar and the euro, seem shaky.
The U.S. could default on its debt on Aug. 2 if Congress
and the White House don't agree to raise the country's borrowing
limit. In Europe, investors worry that Greece may default.
Countries including Italy, Spain and Ireland are also struggling
to pay their bills. Defaults could mean losses for the banks
that own bonds issued by those countries, and that could
trigger widespread disruption in financial markets.
Why own gold? It's because gold has a long
history as a way of preserving wealth, said Tom Winmill,
portfolio manager of the $96 million Midas Fund. The fund
owns gold and stocks in gold mines. "In 6,000 years,
gold is one of the very few assets that have never gone
to zero." Winmill expects gold to rise to $1,800 by
the end of 2012.
Investors believe gold is safe because it
doesn't depend on a government's ability to repay a bond,
like a Treasury or a Greek note. Neither do other commodities
like crude oil, which has the added use of powering automobiles.
"But it's much easier to pick up a bar of gold than
a swimming pool of oil," said James Steel, an analyst
with HSBC.
Gold rose 21 percent in dollar terms in
the 12 months through June 30, according to the World Gold
Council, an industry group. It rose against other currencies,
too: up 2.2 percent in euros, 10.4 percent in Japanese yen
and 16.5 percent in Indian rupees. But gold fell 5.5 percent
against the Swiss franc, which is seen as one of the world's
safest currencies.
Gold's rise has accelerated in the last
two weeks: Monday was its 10th straight day of gains after
it closed at $1,482.60 July 1. Gold has also steadily risen
since the start of 2009, when it cost $880. The Federal
Reserve has kept short-term interest rates at a record low
of nearly zero since December 2008. Low interest rates weaken
the appeal of the dollar, and that in turn sends gold higher.
Investors are behind much of the increase
in the price of gold. Demand from investors rose 26 percent
in the first quarter from a year earlier, according to industry
data. Demand for gold from dentists for crowns and from
companies for use in electronics was flat. Demand for gold
in jewelry rose 7 percent.
The amount of gold held by exchange-traded
funds and similar investments is at a record, according
to Barclays Capital. Exchange-traded funds, also known as
ETFs, trade like stocks and are a way for investors to own
gold without having to store and insure actual gold bars
or coins.
But much of that demand has been from speculative
investors, such as hedge funds, said Jon Nadler, senior
metals analyst with Kitco Metals. Gold could plunge —
if investors regain their confidence that the U.S. won't
default and that the 27-nation European Union won't be threatened
by the region's debt problems.
"I wish this was all about the man
on the street, pension funds, but it's not," Nadler
said. "It's the type of player that tends to get up
at the very next opportunity to find something hot elsewhere.
Will all this end in tears?" Quite likely yes, because
I see that the demise of the European Union and the United
States as a debt entity is really not in the cards."