Last Updated: Mon Jul 18, 2011 19:37 pm (KSA) 16:37 pm (GMT)

Eman El-Shenawi / Market Moves: Gold is back with a vengeance

Eman El-Shenawi

The price of gold is continuing to dart sky-high and the precious metal’s market strength is not letting up.

It was another historic high on Monday as the treasure rallied to over $1600 (the previous record high had just been a week earlier when it was just shy of $1600).The price has soared for many consecutive sessions previously, and so yet another ballooning number was expected by analysts.

But why? Because global markets are now trembling, is the naked answer.

Europe and the United States now come hand-in-hand as “blame partners” for many economic quirks happening globally. The sovereign debt crisis in Europe and the escalating US budget deficit put at $14.4 trillion have been the answer to many recent abnormalities in commodities, stocks and general economic indicators.

And so these global markets are now also blamed for creating a comfortable atmosphere for the gold price to flourish, or perhaps a “too comfortable” atmosphere, as I would ideally describe it.

Gold is now a safe haven for many. Despite its seasonal weakness in demand (traditionally seen in the summer months)”gold stashes,” as I’d like to call them, have been increasing in popularity as a hedge against economic uncertainty.

For the average consumer, it means holding on to that necklace you brought years ago to really make a killing when the global financial situation worsens before it gets better, as many analysts predict will happen.

For the markets, (particularly foreign exchange) it means that gold will become even more of a safe haven as the US dollar, pound sterling and the euro continue to devalue against stronger currencies such as those of Canada, Australia and Switzerland. This is in line with the gold price rallying high on Monday, reaching record highs also in euro and sterling terms.

Since the news of the price hike, investment analysts have forecasted that gold could hit $1700 by the end of the year. This is a snug prediction that could easily happen when further sovereign debt worries lead investors to shift funds into safe-haven currencies, like the Swiss franc and commodities, like gold – slashing their exposure to riskier assets.

Ultimately, the precious metal is about to get a great deal more precious. And while dangerous economic prospects haunt developed economies and hamper their growth, gold holders are wallowing in it as the metal more of a luxury to own and invest in.

For me, it is interesting to see how one economy’s loss can be a particular commodity’s gain. That Midas touch is increasingly becoming a powerful economic superpower to have when investing.

Eman El-Shenawi, a writer at Al Arabiya English, can be reached at:

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