Gold held steady near a record high on Wednesday after a Franco-German summit failed to convince investors that the euro zone debt crisis would be solved effectively, supporting safe-haven demand for bullion.
French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled far-reaching plans for closer euro zone integration, but stopped short of increasing the bloc’s rescue fund and said joint euro bonds may be a long-term solution.
Germany, the strongest member of the euro zone, reported less-than-expected gross domestic product growth of only 0.1% in the second quarter against 1.3% in the first quarter.
These factors are prompting an upward revision of the target price for the precious metal, said Hua Seng Heng Gold Futures, a member of the Thailand Futures Exchange (TFEX).
“People are uncomfortable with what’s happening in Europe and the United States,” said Dick Poon, manager of precious metals at Heraeus in Hong Kong.
Spot gold was little changed at $1,787.80 an ounce by 0658 GMT. It was just 1.4 percent below the record high above $1,813 struck last week. U.S. gold inched up 0.3 percent to $1,790.70.
In October 2007, it sold for about $740 an ounce. A little over a year later, it rose above $1,000 for the first time. This past March, it began rocketing up. On Wednesday, it traded above $1,793 an ounce, just shy of last week’s record of $1,801.
Meanwhile, stocks, despite rising sharply in the last two and a half years, are only slightly higher in price than they were a decade ago. Since hitting a record high in October 2007, the Standard & Poor’s 500 index is down 23 percent.
Since the financial crisis in 2008, central banks around the world have bought gold as a hedge against their foreign currency holdings. Earlier this month, South Korea announced it had bought gold for the first time in more than 10 years.
The huge federal deficit and a deteriorating economy have made many investors fearful of the US economy entering a period of stagnation, driving stock prices downward, said Lloyd Thomas, an economics professor at Kansas State University.
In this period of uncertainty, many are selling stocks and corporate bonds and putting their money into gold.
Gold hits a sweet spot among the elements: It’s rare, but not too rare. It’s chemically stable; all the gold ever mined is still around. And it can be divided into small amounts without losing its properties.
It was used around the world as a currency for thousands of years, and then it gave value to paper currencies for a couple of hundred more.
Gold is “an effective hedge in a world where there is too much debt and uncertainty,” says Jim McDonald, chief investment strategist at Northern Trust, which owns $2.8 billion of gold in a gold fund.
“It’s crazy. It’s almost $1800 an ounce, I’ve never seen it that high,” says Arizona Gold and Silver Owner Jorge Garcia. Garcia has been in the business for most of his life.
Ann Coulson, an instructor for Kansas State University’s personal financial planning programme, said that the weakened US dollar and real estate market, the “wild ride” of the stock market and low interest rates have caused many investors to turn to gold.
“Where to invest has become a question for many and gold has risen to the top for some investors,” Coulson said.
Coulson said there are many ways individuals may choose to invest in gold, including jewellery, coins, bullion or gold bars, exchange traded funds, gold mining stocks, gold mutual funds and gold futures and options.
Jewellery and coins are typically not good choices, she said, adding that gold bars raise many storage and cost issues.
Sharlett Wilkinson Buckner, of Humble, Texas, recently took an old bracelet, ring and necklace to her local jeweler and walked out with $1,070.
“I couldn’t wait for my husband to come home,” she said. “I fanned my money in front of him and said, ‘Look what I got for my gold.'”