And with few signs that the world's worst economic crisis since the 1930s is close to bottoming out, wrung-out investors will keep on pumping money into gold-backed securities as insurance against financial Armageddon.
"Gold is an investment you hope you never make money on. If you do, it means other markets have lost," said Stephen White, director at Sydney-based treasury advisory firm Noah's Rule.
Gold's gains are being powered by two forces -- the risk that the greenback may collapse under the trillions of dollars Washington is injecting into the economy, and that the European Central Bank's more hawkish stance will lead to debt default in the eurozone.
"(There is) the guy who has the helicopter loaded and is on route to currency debasement, versus those who can't touch the printing press, fueling sovereign risk and possible collapse from within," said Alan Ruskin at RBS.
The first view is represented by Federal Reserve chairman Ben Bernanke, nicknamed "Helicopter Ben" for talking about helicopter drops of money to jumpstart an ailing economy, and the other by European Central Bank President Jean-Claude Trichet's oft-repeated mantra of vigilance.
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Ruskin added that even with prices for spot gold near $1,000 an ounce, just short of a record high of $1,030.80 struck last year, it was hard to argue against long gold, short every commodity tied to the real economic cycle.
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SOVEREIGN, BANK DEFAULTS
Iceland and Ecuador have defaulted on government bonds, and worries about the health of the banking sector in a host of countries across Europe, including Ireland and the United Kingdom, persist.
Other nations, including Turkey, Latvia, Hungary, Ukraine and Serbia, have reached out to the International Monetary Fund for help in recent months.
"Eastern European banks -- if they default further then it will trigger the second wave of the sub-prime crisis," said Akhi Kamkolkar, Head of Futures at Halifax investments in Sydney.
"(Gold) is the only true safe haven. The dollar is just about worth the paper it's printed on and if they keep on printing, there is really only one place for it to go."
Even U.S. treasury bonds are considered a risk. The cost of insuring against default on 5-year US Treasuries is now 90 basis points -- it was nothing just over a year earlier.
"Gold could be preferable to currencies if there are concerns about the credit quality of the issuer of the paper currency. The increasing correlation between gold prices and measures of sovereign and financial risk default clearly suggests that gold has become the 'currency of last resort'," Goldman Sachs (nyse: GS - news - people ) said.
And investors are listening. The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings hit a record 1,028.98 tonnes last week, making the fund the world's seventh biggest holder of bullion, just behind Switzerland.
For a graphic on SPDR Gold Trust's holdings, please click: https://customers.reuters.com/d/graphics/MKTS_SPDR240209.gif
Average 2009 daily trade volume for the fund is 19.7 million, 38 percent above the average for 2008, while the increase in stocks held by the fund this year already exceeds that for all of last year.
"Just buy gold," was the advice from Mark Pervan, senior commodities analyst at ANZ Bank.
"The exchange traded funds are driving prices. The investment community just wants to find somewhere to park its money."
Source : Reuters
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