Gold vaulted 1.4 percent in the first two hours of trading Friday amid mounting concerns the U.S. economy is heading into another recession and as some European lenders faced a short-term funding crunch, highlighting the risk of a banking crisis. Nervous investors fled to the safety of core government bonds, Swiss francs and gold, which hit a record high, with many seeking to unwind holdings of riskier assets such as stocks, commodities and higher-yielding currencies before the weekend.
European shares extended steep losses from Thursday, when they suffered their biggest daily slide in 2-1/2 years, with key indexes in Britain, France and Germany all deep in the red.
The sharp decline in stock markets is expected to have an adverse impact on household wealth, further undermining consumer confidence and demand in coming months. Heightened uncertainty over growth could also see producers delaying decision-making, hitting global output.
These concerns are likely to see investors cut exposure to stocks, commodities like metals and oil and growth-linked currencies such as the Australian dollar in the coming days.
Gold for December delivery on the CME Comex jumped $33.60 to $1,855.60, up from Thursday’s closing price of $1,822. At one point in Friday trading it reached $1,881.40, a nominal record. The inflation-adjusted record occurred in 1980 when it hit the equivalent of about $2,400.
China Adding to it’s Gold Reserves
According to data on every country’s gold reserves recently issued by World Gold Council (WGC), the United States’ gold reserves are 8,133.5 tons, accounting for 26.49 percent of the world’s total, and the Untied States is still the largest gold reserve country. China’s gold reserves are a little more than 1,054 tons, ranking sixth in the world. Although China’s gold reserve is not less in quantity, it accounts for only 1.6 percent of China’s total foreign reserves. In comparison, the Untied States’ gold reserves account for 74 percent of its foreign reserve, and even emerging countries including Russia and India have gold reserves accounting for more than 5 percent of their foreign reserves. Insiders said that it is good for emerging economies to hold more gold reserves. It is the trend that the Central Bank of China will hold greater gold reserves.
The gold purchased by every country in 2011 is three times as much as the gold they purchased in 2010. In fact, before Standard and Poor’s downgraded the U.S. credit rating, the central bank of every country already started to gradually increase their gold reserves because of the European and U.S. debt crises and the declining confidence in the U.S. dollar and Euro. People have noticed that the countries that dumped gold in the past 20 years actually turned into net gold purchaser in 2010 because they want to realize foreign reserve diversification and reduce dependence on the U.S. dollar.
According to data issued by the WGC, governments of all the countries have purchased a little more than 203 tons of gold in 2011, three times as much as the gold they purchased in 2010. It indicates that every country is more and more regarding the gold as a tool for resisting the depreciation of paper money and global economic turbulence. Currently, China’s foreign reserves are definitely the largest in the world, but China’s gold reserves are still far less than the global average level.
Therefore, gold is of great significance to preserve a country’s financial security. The United States holds about 8,100 tons of gold reserves; Germany, 3,400 tons, and France and Italy each, 2,500 tons. These countries have paid high costs for their gold reserves, showing that they have drawn particular attention to the strategic importance of gold reserves.
For all the well-deserved attention being paid to the rocketing price of gold, the price of silver was rising early Friday at more than twice the rate of gold as Indian investors piled into the white metal. Although silver has not been setting record highs in recent weeks, as has gold, it was surging at 8:35 a.m. EDT in electronic trading on the CME Comex division of the New York Mercantile Exchange.
Silver for September delivery, the most actively traded contract, jumped to $41.79 from Thursday’s closing price of $40.68, a 2.79 percent gain. Gold, meanwhile, rose to $1,844.80
from Thursday’s closing price of $1,822, a 1.25 percent gain.
Meanwhile, iShares Silver Trust, an exchange-traded fund that is backed by physical silver jumped in premarket trading 3.38 percent.