On Tuesday, gold prices rose above $1,000 per ounce and that is the highest level since March 2008 and it is suggesting that investors are uncertain about the U.S. dollar’s weakness and they anticipate international interest rates to remain low for some time.
On the New York Mercantile Exchange, for October delivery the gold contract traded up $9.69, or 1.0%, at $1,005.00 per troy ounce. That is the highest since a record of $1,038.60 has been hit by it on March 17 last year.
Among safe-haven assets gold is typically bought as an alternative to the dollar favored by investors who look forward to preserve capital. So a rise in its price often correlates to a drop in the value of the American currency.
This has happened in the spring of 2008, when gold was last above $1,000 and worries that were arising about the financial crisis in the U.S. were hurting the country’s currency.
On Tuesday the night before, as stock markets rose and investor sentiment improved the dollar fell to 92.29 yen from 93.05 yen and drop to $1.4434 against the euro from $1.4332.
An economist at Capital Economics, Jessop noted that despite of all the facts gold was also being boosted by market expectations that for some time to come global central banks would keep their interest rates low. There is one disadvantage to holding gold and that is no interest is earned but there has been a sharp fall in rates on dollar-denominated assets such as government bonds, this has lessen that disadvantage.
The appeal of gold has been reinforced by the fact that 20 of the world’s rich and developing nations promised over the weekend to keep in place their stimulus measures and that include both spending as well as low interest rates.
As consumers quickly start selling gold items to take advantage of stronger prices that is why Jessop was not convinced that gold could sustain such high prices for very long or push much higher.
It has been said by him that this rally is sowing the seeds of its own destruction.
