Gold Price Hits Record High of $1,462.93 as Inflation Fears Rise

The price of gold hit an all-time high today, rising above $US1,462.93 an ounce on fears of global inflation and further sovereign debt problems in Europe.

Gold hit a record high on Wednesday as precious metals soared in value, driven by a falling dollar and investors seeking traditional safe havens. Photo: Harman Liemburg Workshop/Flickr

The price of gold hit a new record high of $1,462.93 an ounce in trading on Wednesday as the ‘safe haven’ metal won support from geopolitical unrest and surging global inflation, traders said.

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 silver 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 on the London Bullion Market at $1,462.93, up $26, while silver ended the day up $1.21 at $39.71. As the result, 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.

The weaker dollar was partly responsible for the rise in gold. Since the price is denominated in dollars, if the dollar falls the price becomes relatively cheaper to investors holding other currencies.

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.

Precious metals have been winning support as unrest in the Middle East and north Africa “shows no signs of abating with the civil war in Libya escalating and already negative situations in Syria, Yemen and Bahrain deteriorating further,” said SEB Commodity Research analyst Bjarne Schieldrop.

Another analyst Ronald Leung, of Lee Cheong Gold Dealers in Hong Kong, said: “Tensions in the Middle East and north Africa are not solved yet. Secondly, there are new uncertainties in the eurozone. These all will benefit gold.”

Inflation has also encouraged investors to buy gold. Mr. Schieldrop said: “Increasing global inflation pressures provide additional support for gold.”

“Very high inflation rates are particularly good for gold for short periods, as investors seek out hard assets, as concerns about the outlook intensify and safe-haven buying picks up,” said Standard Chartered analysts.

China, a major consumer of commodities such as oil and metals, said on Tuesday it would raise one-year deposit and lending rates by 25 basis points in its latest effort to curb rampant lending and bring inflation under control.

Authorities have been pulling on a variety of policy levers to rein in consumer prices and housing costs but inflation remains stubbornly high. “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.”

The country’s consumer price index rose to 4.9 percent in February, well above the government’s full-year target of four percent, despite persistent efforts to reduce household costs and ease growing consumer anxiety. [via Raw Story, The Guardian (UK) and The Telegraph (UK)]

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