Italy Crisis Pushes Gold Prices to New Record

First it was Greece, Ireland, then, finally, Portugal – and now it is Italy’s turn.

Investors are again fleeing to investing in precious metals based on the fear of an escalation of the debt crisis.   As a result, the price of gold in euro’s jumped to a new record high.

The price of one ounce (31.1 grams) has risen to around 1095 €.  In one week alone it has risen more than 70 €.

In terms of the U.S. dollar, the gold price was  at $ 1,556 and so far about $ 20 below the previous record. Thus gold traded in dollars per troy ounce on a three-week high.

fear of the Government Printing Press

Behind the price increase is the fear that the European Central Bank (ECB) will in an effort to support the debt states, start the printing press and flood the market with freshly printed money to support the faltering economies. In this inflationary monetary policy a larger amount of paper money is chasing the same amount of goods .   The result is an increase in the price of raw materials.  Many people are urging the ECB to extend the reform policy of the euro countries. The euro rescue had to be increased significantly, possibly even doubled to 1.5 trillion euros. On Monday in Brussels is a meeting of euro-finance the debt crisis instead.

Investors throw PIGS bonds on the market
to start of the week, the risk premiums for Italian and Spanish government bonds with a maturity of ten years had risen to new record levels. This means that investors moved away en masse from the bonds of states in crisis, because they assume that the PIGS countries (Portgual, Italy, Greece, Spain) ability to repay its sovereign debt will be difficult and thus the bonds will be worthless. The situation in the bond markets of Italy and Spain had deteriorated sharply since the demotion of the Euro-Lands Portugal early last week.

In the U.S., the parties have still not agreed on the need to increase the debt ceiling to avoid the threat of insolvency. The sharp rise in prices in recent days, tends to suggest that the speculative financial investors betting again recently have expanded their rising prices.

Tags: gold prices