Gold prices remain near record highs

Gold prices stuck close to record highs today as lingering worries over the stability of the eurozone sent investors into the traditional safe haven.

Despite a €750bn bail-out agreed by European leaders last weekend, gold pushed to $1,248 an ounce this week and remains within sight of all-time highs.

The move comes amid weakness for the single currency and the pound against the dollar as European nations face up to tackling huge deficits.

Experts believe the efforts of many countries to tackle the dire state of their public finances will impact growth, putting pressure on exchange rates.

Numis Securities analyst Andy Davidson said: “Long-term fundamentals are supportive, with the repeated and ever-larger government bail-out programmes adding huge inflationary pressure to the major currencies over the long-term.”

Sterling has slipped to 1.45 against the dollar, while a weakened euro fell to a new 14-month low against the greenback below 1.25.

Despite new austerity measures by Spain and Portugal to tackle deficits following the Greek crisis, there are worries over opposition to the cuts and the potential damage of Government spending cuts on stagnant or shrinking economies.

Mike Lenhoff, chief strategist at Brewin Dolphin, said the price rise reflected gold’s “all-weather” inflation hedge although a weaker exchange rate would eventually be good news for economic recoveries in the eurozone and UK.

Capital Economics’ Julian Jessop has forecast that gold will fall back below $1,000 an ounce by the end of the year unless a major economy defaults.

He said: “The EU rescue package should be enough to avoid an imminent financial meltdown in the euro-zone. But the required fiscal tightening will undermine the economic recovery in the region, which should keep the euro weak and dollar strong.

“With global growth and commodity prices likely to fall over the coming year as policy stimulus fades, gold should lose the support that it has gained as an inflation hedge.”