Gold surges above $1,700 on US downgrade woes
by Emma Dunkley on Aug 08, 2011 at 09:07
Gold has hit all-time highs of $1,709 following a week in which Standard & Poors’ downgraded the US credit rating and equity markets plummeted on the Eurozone’s ongoing debt crisis.
The precious metal is up over 3% today and represents one of the only asset classes not to be sold off, with the FTSE 100 index opening trading this morning down 1%, while Asian markets shed 2.4%.
The sell-off follows the move by S&P on Saturday to cut the US credit rating from AAA for the first time in history, down to AA+, not long after the country’s political deadlock over raising its debt ceiling and making a deficit reduction.
Last week also saw the European Central Bank’s president Jean-Claude Trichet announce a renewal of bond buying, which failed to instil market confidence as the bank only purchased Irish and Portuguese bonds, stoking fears over Italian and Spanish sovereign debt.
However, the ECB has now announced it will 'actively' buy bonds in the Italian and Spanish market in a bid to drive down yields.
On the back of the US downgrade, Europe’s indecisive debt-buying manoeuvre and subsequently falling global equity markets, gold has been one of the few asset classes to significantly rise, as investors flock to the metal as an apparent safe-haven.
Gold only breached the $1,600 barrier for the first time in mid-July and has gained over $100 over this record level in the last day.
Goldman Sachs today raised its longer-term forecast for gold, to $1,645, $1,730 and $1,860 on a three, six and 12-month horizon. These figures are up from Goldman’s previous forecast of gold peaking at $1,600 an ounce in the middle of next year.