Gold Tops $1,500 in Flight to Quality
Source: New York Times, Matthew Saltmarsh (4/20/11)
"We're seeing a perfect storm for gold and silver prices."
Investor concerns about global inflation, government debt and turmoil in the Middle East converged Wednesday to push the price of gold above $1,500 an ounce for the first time.
Other precious metals also rose, benefiting from what analysts call a "flight to quality." That is when uncertainty about the economic and political outlook pulls investors into those assets perceived to be safest.
The list of factors that have supported the price of precious metals in recent weeks is long. It includes worries about the sustainability of European debt levels—and whether countries like Greece will soon default; the threat of a possible downgrade of U.S. credit ratings amid an impasse over raising the debt limit and dealing with the budget deficit; the weaker dollar; rising inflation in many parts of the world; and continued unrest in North Africa and the Middle East, which has pushed up oil prices.
"We're seeing a perfect storm for gold and silver prices," said Robin Bhar, a senior metals analyst in London for the French bank Crédit Agricole.
The contract for May delivery of gold in New York was quoted at $1,502.50 an ounce Wednesday morning, up $7.20. It was the first time that gold had breached the $1,500 level.
That represented the highest level ever for the metal in nominal terms, although on an inflation-adjusted basis it was higher during the 1980s.
In March 2008, the price of gold first broke the $1,000 level.
As well as benefiting from demand for industrial use and from jewelers, gold and silver futures contracts are seen as attractive substitutes for paper investments, given that they can be redeemed as a physical commodity.
"Gold is sometimes a currency, sometimes a commodity and sometimes a store of value," analysts at Merrill Lynch wrote recently.