News / Europe

Gold's Recent Rise Tied to Euro's Decline

Michael Bowman

While a falling euro has grabbed financial headlines, the price of gold reached a record-high last week and has since hovered around $1,200 an ounce, that is up from $930 a year ago and $270 a decade ago.  Analysts say a worsening debt picture among industrialized nations has reduced confidence in the world's major currencies and made precious metals more attractive to investors.

It has been treasured since the earliest civilizations, led nations to conquer and colonize, sparked frantic rushes to remote lands, and inspired some of the world's best-known poetry.  A versatile metal, gold is used for currency, jewelry, awards and medals, industrial applications, and as a safe haven for wealth in uncertain times.

Nations began issuing paper money centuries ago as a substitute for precious metal coins.  But when faith in national currencies declines, many people still turn to gold to preserve their financial worth and, they hope, turn a profit.

Bank of America analyst Mary Ann Bartels on Bloomberg Television:

"People concerned about inflation like gold," she noted.  "And it is a store of value.  So it really answers a lot for a broad investor base."

A surge in demand for gold recently pushed its price to an all-time high.  And buyers are not limited to wealthy investors.  Earlier this month, Beijing policeman Ding Jingshan showed up at a gold market to make a purchase.

"I think investing in gold bullion is very good.  The price of gold has been going up and I think it will rise even more," said Ding.

Ding is not alone in believing that gold will rise above the current $1,200-an-ounce range.  Again, Bank of America's Mary Ann Bartels:

"We have had a target for some time on gold of $1,500 to $1,600 [an ounce], and we are still very comfortable with that target," added Bartels.

Fear of inflation often heightens gold's appeal.  But analysts see low short-term inflation risks in the United States and other major industrialized nations as a fledgling global economic recovery takes shape.

But for the long term, things look murkier in Europe and elsewhere, with massive fiscal imbalances and staggering debt forcing governments to scramble and make painful decisions.  The Greek debt crisis has weighed heavily on the euro and boosted gold's appeal, according to Rachel Benepe, portfolio manager of First Eagle's Gold Fund.

"The risks are out there," said Benepe.  "With the European zone having issues, people are worried about currencies.  It is not really surprising that gold has become a substitute currency, and that more investors are moving into it.  When you look at gold, it is a scarce asset.  If people are hoarding and buying, the price of gold is going to move up."

Some analysts foresee a scenario where unsustainable debt in the United States and Europe eventually forces central banks to devalue their currencies.  Such moves can spark gut-wrenching hyperinflation, as seen in Zimbabwe in recent years, in much of Latin America in the 1970s and 1980s, and in Germany between the First and Second World Wars.

A major currency devaluation today would almost certainly unleash global panic-buying of precious metals, pushing the price of gold to staggering new highs.

But Rachel Benepe envisions an alternate scenario.

"Once fear starts to subside a little bit, people will move out of gold," added Benepe.  "It is really there as a hedge.  And it is really there to protect your money in the face of that risk."

Historically, gold prices have trended higher amid a falling U.S. dollar, and vice-versa.  But recent months have seen both the dollar and gold rising at the same time, what Bank of America's Mary Ann Bartels calls a "decoupling" of the traditional inverse relationship.

"Gold has decoupled from the dollar," explained Benepe.  "Really, this is a story of a weaker euro, not a stronger dollar."

Bottom line: if the euro recovers, expect gold prices to moderate.  If not, the future price of gold is anyone's guess.

You May Like

Nigeria Incumbent in Tight Spot as Poll Nears

Muhammadu Buhari is running a strong challenge to Goodluck Jonathan, amid a faltering economy and Boko Haram security worries More

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo tells VOA that despite her fame, life is still a struggle as she waits for government's promise of support to arrive More

Video Cambodian Land Grabs Threaten Traditional Communities

At least seven different indigenous groups in Ratanakiri depend mainly on forest products for their survival, say they face loss of their land, traditional way of life More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More