Gold price hits record high on inflation fears
Gold prices hit a new high of $1,462.93 an ounce on Wednesday, setting a record for a second-consecutive day on inflation fears and a falling US dollar.
Demand for gold is rising as investors see the metal as protection from higher prices Photo: Alamy
3 Comments
Concerns over the continuing turmoil in the Middle East and North Africa also boosted safe haven demand for precious metals, with the silver price rising to a 31-year high of $39.77 an ounce. The price was last at this level in January 1980, when the global economy was in turmoil following the 1979 oil crisis.
After hitting new highs, the gold price closed in London at $1,462.93, up $26, while silver ended the day up $1.21 at $39.71.
The dollar weakened against major crosses, making precious metals cheaper in other currencies. An imminent interest rate increase in the world's largest economy is looking less likely after Dennis Lockhart, president of the Atlanta Fed, said the US economy was too fragile for such a move at present. Tuesday's minutes of the Federal Reserve Open Markets Committee also supported this view.
On Thursday, the European Central Bank is expected to raise interest rates, making the euro more attractive to foreign investors and raising the prospect of further weakening of the dollar. On Wednesday, the dollar fell to a 14-month low against the single European currency.
Meanwhile, fears over inflationary pressures around the world are building. This boosts demand for gold as some investors see the metal as protection from rising prices.
China raised its interest rates earlier this week as it tries to cool its fast-growing economy. "The reality of accelerating inflation in China is indeed positive for gold," Edel Tully, an analyst at investment bank UBS, said.
"Current inflationary/deflationary uncertainty is being exacerbated by rising energy prices," Marcus Grubb, managing director of investment at the World Gold Council, added. "Brent crude breached $120 for the first time since August 2008 and WTI crude is fast approaching $110, as a result of the events in the Middle East and North Africa."
Brent edged a further eight cents higher to $122.30 a barrel at 5pm on Wednesday.
Mr Grubb also cited renewed concerns about global food inflation, particularly in emerging markets, following crop reports in the US which saw stocks of corn and soybeans unexpectedly revised down in an already tight supply environment. Prices of basic foodstuff are expected to rise further.
Gold rose on Tuesday after credit rating agency Moody's downgraded its rating on Portuguese debt, increasing default fears. Silver prices have been particularly strong over the past 18 months and have more than doubled since August last year.
On Wednesday, the gold/silver ratio, which is the number of ounces of silver it takes to buy on ounce of gold, fell to 36.7, the lowest level since 1983.
For more on the this sector see our dedicated commodities page
"Current inflationary/deflationary uncertainty is being exacerbated by rising energy prices," Marcus Grubb, managing director of investment at the World Gold Council, added. "Brent crude breached $120 for the first time since August 2008 and WTI crude is fast approaching $110, as a result of the events in the Middle East and North Africa."
Brent edged a further eight cents higher to $122.30 a barrel at 5pm on Wednesday.
Mr Grubb also cited renewed concerns about global food inflation, particularly in emerging markets, following crop reports in the US which saw stocks of corn and soybeans unexpectedly revised down in an already tight supply environment. Prices of basic foodstuff are expected to rise further.
Gold rose on Tuesday after credit rating agency Moody's downgraded its rating on Portuguese debt, increasing default fears. Silver prices have been particularly strong over the past 18 months and have more than doubled since August last year.
On Wednesday, the gold/silver ratio, which is the number of ounces of silver it takes to buy on ounce of gold, fell to 36.7, the lowest level since 1983.
For more on the this sector see our dedicated commodities page
