As markets overseas continue to crumble and consumer confidence further deteriorates, investors have channeled their worries into gold for protection.
The price of gold has risen steadily since early July, peaking on Wednesday at a record $1,578.55 per ounce. Michael Widmer, an analyst at Bank of America-Merrill Lynch, said that the price of gold, despite having some dips and peaks, will continue to rise over the next five years.
Gold is traditionally thought as a hedge against devaluing currency when consumer confidence in stocks falls. Investors have reason for concern. Over the summer, Moody’s Investors Service downgraded Ireland’s credit rating from Ba1 to Baa3, or “junk” status. The probability of Greece defaulting on its debt has crept up to daunting 98 percent, and Portuguese emigration rates are highest since 1974 because of the dying job market.
“I think we’re seeing the incompatibility of a common currency [with] not much else being ‘common’,” said Alex Knobel, a junior double major in economics and government and politics. “I don’t think the political capital will be there for the more prosperous countries to link their economies any closer to the rest of Europe than they already are.”
According to a recent Bloomberg poll, investors are expecting the European economy to relapse into a recession, and more than one in three forecast a global meltdown within the next year, so investors looking for a safe haven from economic collapse have found it in gold.
The problem with the rise in gold interest is the looming presence of a bubble burst. Gold prices can drop unexpectedly, as seen in 2008 when gold prices dropped 30 percent in a six month period, and in the ‘80s by 60 percent over a two-year frame. Fox Business believes a bubble burst has already occurred when the price of gold dropped 9 percent in two days and 20 percent since the beginning of the month.
“The price [of gold] is über inflated and stocks are now undervalued, so where do [they] think the money will go?” said junior economics major Wes Furnback. “Money will be lost when the bubble bursts. Mutual funds and ETF’s heavily invested in gold will decline and gold backed currencies will decline.”