With few safe havens left for investors, the price of an ounce of gold has broken $1,700 for the first time ever this week, and some analysts believe it could reach $2,500 an ounce by the end of this year.
When investors are nervous of currencies, treasury bonds and just about everything else, their last resort seems always to be gold. Despite the efforts of Barrick Gold, Newmont Mining and Goldcorp, however, supply can never keep up with this kind of demand, so these price predictions could well prove to be true.
After Standard & Poor's historic downgrading of the US credit rating (another first time ever occurrence), and gloomy global economic statistics unveiled every day, gold seems to be the only commodity in which investors have any confidence.
(Lack of) investor confidence has dragged down share prices all over the world, and governments in the US, UK and the Eurozone are drowning in debt.
Paying off massive debts is painful, as anyone with a credit card problem will understand. If you could increase your income, the pain would be less, but debts on the current scale have been met with austerity measures which are not designed to achieve the economic growth that would enable the debts to paid off more easily.
The risk of another recession in the US and Europe can only discourage companies from investing to increase capacity or take on new employees.
Investor confidence is a fickle financial instrument, and investors are often accused of creating their own self-fulfilling prophecies. What investors believe about a company, or a country, can have a more profound effect than the truth. But that’s the world we live in.
The current gold rush is sending the message that investors do not believe the US and European economies can avoid a double-dip recession. Their actions on the world’s stock markets in the last few days are only adding fuel to that fire.
While it’s certainly true that we desperately need governments with vision to navigate our way towards economic growth, perhaps we also need investors to adopt a longer-term vision themselves, before they sink the ship that carries the gold.
