Thanks to the Europeans, one ounce of gold hit a 30 year record high of $1,600. That’s great news for those of you with a bit of scrap gold sitting in the loft – bad news for the rest of us; really bad news.
Rallying Gold Prices tied to Financial Collapse
Gold prices are fuelled by speculation and are heavily dependent on demand side economics. When a country’s (or in this case, a continent’s) economy is expected to take a hard knock, people rush to swap their fiat currency for something more stable. This could be converting Euros into Dollars or Dollars into Yen, but more common is the purchase of gold. Gold, unlike any fiat currency, is tried and tested and has been used in trade for centuries without coming unstuck. The security of gold is proven and it’s extremely liquid, making the demand for gold in economic recessions very, very high.
Where is the Gold Price Headed?
While the Eurozone is in the middle of a debt crisis that could force Greece into dropping the Euro altogether, the US is also faced with the possibility of defaulting on their debt. America has hit a debt ceiling that, if not raised by Congress, could cripple the US economy and the dollar. If Congress were to do the unthinkable and reject the move to increase the debt ceiling, the gold price will shoot up yet again as ‘capital flight’ takes hold. The dollar would be virtually abandoned by investors as it became more unstable than ever.
The continued Eurozone crisis and the problems that Italy are expected to bring to the Euro wil be likely to continue driving gold prices higher and higher over the next few months. While Italy looks to be the latest addition to the Eurozone crisis, the European fallout is by no means over as more underlying issues in other European countries have yet to rear their head.