Foreign Exchange Insight : Gold Hits Record High, Equities Lose Ground and GBP AUD Rate Spirals as Investors Fear the Worst For Global Recovery

4 Aug 2011 at 6 AM - Written by John Cameron

STORY LINK Foreign Exchange Insight : Gold Hits Record High, Equities Lose Ground and GBP AUD Rate Spirals as Investors Fear the Worst For Global Recovery

The Pound Euro exchange rate (GBP EUR) is 1.1460. The Pound Dollar exchange rate (GBP USD) is 1.6357. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5348.

Yesterday saw the release of the latest in a string of disappointing data, with the US Institute of Supply Management issuing figures which showed that America’s service industries collectively grew at their slowest pace for 17 months last month.

These numbers raised further concerns for the state of the US’s real economy, following last week’s annualised GDP figure for quarter 2, which printed at a significantly lower than had been expected.

Global share markets reacted badly to the US figure, which followed on the tails of worryingly poor Australian retail sales and building approvals figures and Chinese numbers which suggested that economic activity in Asia’s powerhouse economy is cooling, all of which were released earlier this week.

The Eurozone’s sovereign debt situation continued to provide investors with additional reason for risk aversion, with a meeting between Italy’s Finance Minister and Jean-Claude Juncker, the leader of the Eurogroup finance ministers stoking market rumours that Italy is facing serious debt problems.

Further pressure was heaped on the Euro last night with the release of a report by a widely-respected UK think tank, the Centre for Economics and Business Research. The CEBR report concluded that Italy would be forced to default on its sovereign debt commitments unless it’s domestic growth rate saw a significant jump. The report went on to state that Spain’s level of national debt is significantly lower than Italy’s, meaning that it is still possible for the Iberian giant to avoid a catastrophic debt default.

This week’s nosedive in global appetite for risk has caused investors to shift their funds into the ultimate safe haven asset - gold. This has seen the precious metal’s price spiral to a new record high of $1,673 per troy ounce within the last 24 hours.

The hike in gold’s value signifies a loss of faith by investors in the traditional safe-haven currencies, with the Swiss Franc experiencing massive selling pressure yesterday as Switzerland’s central bank stepped in to further ease monetary policy. Faith in the US Dollar has been shaken due to the recent US debt ceiling stand-off and Japan’s policy-makers have stated overnight that they are set to actively weaken the Yen by selling their JPY reserves on the market. This leaves gold as the safest option for market participants in uncertain times.


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