Debt crisis spurs gold rush

Gold prices slipped for the third consecutive day Aug. 15 after a run of record price growth spurred by global economic uncertainty. A dismal debt outlook for the eurozone and a crisis of faith in U.S. leaders to manage debt caused nervous investors - among them thousands of Czechs - to rush for gold, as it is considered a "safe-haven" investment at times when stocks and other securities are unpredictable.

The price of the precious metal reached historic highs Aug. 11, topping out at more than $1,800 (30,665 Kč/1,260 euros) per troy ounce (approximately 31 grams), after news that Standard & Poor's (S&P), one of the world's three major credit rating agencies, had dropped the U.S. credit rating from its sterling AAA to AA+, the first cut to the country's rating since 1917.

The Czech Mint struggled to keep up with requests for gold purchases in the first two weeks of August, with the dealer receiving hundreds of calls per day, according to management. Czech Mint Commercial Director Tomasz Surdy said gold sales were steady throughout most of the year, but increased 2,000 percent for coined and barred bullion in the first half of August. In just one week, the company sold 100 million Kč in gold. Czech gold dealer Soliter said demand among its Czech clients for investment in gold has doubled since the start of the year.

"The attraction of gold is that you can buy the bars and physically have them, while even if you have millions of Swiss francs, they're just sitting in your bank account," Surdy said of gold compared with other safe-haven commodities in troubled economic times. "Gold is something you can touch and show to friends and family. ... It's a physical thing."

Some analysts, however, warn that the rising prices had to be checked, and that this slip in prices may signal the burst of the gold bubble, which has inflated to "unsustainable levels."

Other gold spotters argue that the price could rise further after this slight correction that brought prices down 0.5 percent by mid-day Aug. 15 in Asian markets.

"Near term, a correction makes sense in relation to other safe havens," Hayden Atkins, an analyst with financial advisory company Macquarie, told Reuters Aug. 12. "That is what you would need for the gold price to go higher for people to be reflecting their concerns more in gold than in safe havens in general."

A small burst of confidence in equity markets and in the euro accounted for the slip in gold buying, but the larger trend of investor risk aversion will mean continued panic purchasing of safe-haven investments.

"I expect the price to continue rising," Surdy said. "It's related to the awful state of finances in the most developed countries and a lack of other alternatives that people consider reasonably safe."

Emily Thompson can be reached at
ethompson@praguepost.com