Abu Dhabi: Gold prices on the international market scaled new peaks Tuesday as nervous investors dumped stocks and currencies to seek refuge in the yellow metal, a safe haven in times of growing global economic uncertainty.
The rush of investors to gold followed the Dow Jones Industrial Average's plunge late on Monday that signalled an increasing loss of confidence in riskier assets after ratings agency Standard and Poor's (S&P) cut the US' prized AAA rating on Friday.
The timing of the Dow's decline couldn't be worse, as it came when the world's largest economy is teetering on the brink of a double dip recession and Europe grapples with its own sovereign debt crises — which is getting more contagious by the day despite the European Central Bank's interventions in the bond market.
Gold hit a record $1,778 (Dh6530.4) an ounce yesterday, its biggest three-day rally since the depths of the financial crisis in late 2008. The yellow metal has risen by about eight per cent this month, driven by flows of cash out of equities, bonds and currencies.
Investors seem to have lost confidence in the ability of European leaders to stem the spread of the debt crisis that has now engulfed the Eurozone's third- and fourth-largest economies, Italy and Spain. Spot gold was last at $1,769.90 an ounce at 5:30am US eastern time, up 3.2 per cent on the day.
"Investors are flocking to gold due to its safe haven appeal and also because there are few alternatives. Other than the Japanese yen and the Swiss Franc, the major currencies are debased," Pradeep Unni, Senior Relationship Manager at Dubai-based commodities trading firm Richcomm Global Services DMCC, told Gulf News.
Tushar Patni, managing director, Ajanta Jewellery in Abu Dhabi, said gold prices have gone up by around Dh26 a gram within a month, which is unprecedented.
"Most of the bullion traders are of the opinion that gold prices could go as high as $2,000 a troy ounce due to the current turmoil," Patni said.
"High prices have slowed down the physical demand in the gold jewellery segment. However, the demand is very high for gold bars and gold coins due to their easy liquidity, easy availability and high returns," he added.
