Gold scores record high at 1,245 dollars an ounce

12th May 2010, Comments 0 comments

Gold prices smashed their way to a new record peak above 1,245 dollars an ounce on Wednesday, with demand propelled by investors seeking shelter from the eurozone debt crisis, analysts said.

The precious metal extended a blistering run, soaring as high as 1,245.07 dollars in late morning trade on the London Bullion Market.

"Gold has extended its gains ... setting fresh lifetime highs," said analyst James Moore at specialist metals website

Heightened concerns about the risk of contagion from Greece's debt woes have attracted fresh inflows of cash into gold, which is widely regarded as a safe bet in times of economic uncertainty.

Markets were buoyed on Monday after the European Union and the International Monetary Fund gave their backing to a 750-billion-euro rescue plan for crisis-hit euro countries aimed at limiting the fallout from Greece.

However, many investors remain unconvinced that the massive scheme will resolve the crisis over levels of sky-high state debt.

"The actions by the EU and IMF and forming of a new UK government may go some way to dampen volatility," added Moore.

"However, the sheer scale of fiscal deficits facing numerous countries is likely to prompt further diversification ... and should ultimately propel gold to fresh highs."

Traders remain fearful that the Greek crisis could spread to other peripheral eurozone economies, notably Portugal, Ireland, Italy and Spain. That could send shockwaves through the global financial system.

"Persisting worries that the debt crisis in the eurozone could spill over to other countries -- despite the EU's 750-billion-euro aid package -- and thus contribute to a destabilisation of the financial system are driving investors to the yellow metal," said Commerzbank analyst Carsten Fritsch.

"Gold should remain in strong demand as a safe haven in times of crisis and the flight to safety should go on," added Fritsch.

Prior to this week, the precious metal had forged previous record highs late last year on the back of inflationary fears and increasing moves by central banks to diversify assets away from the dollar.

Gold, whose two main drivers are jewellery and investment buyers, is also regarded as a good store of value in times of higher inflation.

Despite the metal's record-breaking run, London-based consultancy Capital Economics predicts that gold will lose its sparkle later this year.

"Unless the government of a major economy actually defaults, or the dollar collapses, we continue to expect gold prices to be back below 1,000 dollars by the end of the year," forecast Capital Economics analyst Julian Jessop.

"The EU rescue package should be enough to avoid an imminent financial meltdown in the eurozone," he added.

"But the required fiscal tightening will undermine the economic recovery in the region, which should keep the euro weak and dollar strong."

A stronger US unit makes dollar-priced gold more expensive for buyers using weaker currencies, which tends to weigh on demand and prices.

© 2010 AFP

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