Los Angeles, CA – Gold rose past $1780 an ounce this week on hopes that the European sovereign debt crisis may be contained. The hope came from news that the Italian senate will likely vote and approve of a series of austerity measures designed to help the country avoid a bail-out from the European Central Banks. The precious metal market also rallied on news of Greek Prime Minister George Papandreou’s decision to step down from office to allow the creation of a unified government intended to garner international financing and avoid a collapse in the country’s central economy.
While progress in Europe’s debt crisis is hopeful, many financial analyst and economists believe the worst is yet to come. “We still haven’t seen any real concrete, brick-and-mortar action that could alleviate the European crisis” said Davdi Lennos, Resource Analyst for Fat Prophets. “The market is still expecting there to be bad news coming from Europe. It may not be Greece. They’re now looking at its neighbor in Italy and while that’s still there, the gold price will generally trade up”.
News also came this week of Italian Prime Minister Silvio Berlusconi’s intent to step down from office as well. Uncertainty of the direction of Italy’s government added to the climb in price in Gold. “Although the planned reforms are unlikely to be blocked, it is still unclear whether a new government in Italy will be able to successfully consolidate its budget without external help. Gold should therefore continue to profit from the persisting high uncertainty” said Carsten Fritsch, analyst at Commerzbank. Nearly $9 trillion was wiped off the value of global equities since May and yields on Greek and Italians bonds rose to euro-era records as of this week, causing the rush for safe-haven investments like Gold and Silver.
Fear Factor in the U.S.
In the United States, the sputtering economy continues to hit near stall speed, causing looming fear and the need to protect investor wealth. Currently, the 5 biggest problems the U.S. economy faces are housing, unemployment, public finances, infrastructure and clogged credit markets. “Until we get movement on those five things, we’re at a stall speed” stated Pimco’s Co-CEO Mohamed El-Erian. “When the financial deficit is 9% of the gross domestic product, when interest rates are already at zero percent and when a quarter of the homeowners are already underwater on their mortgages that is a terrifying concept. That is why everything must be done to avoid a slowdown in growth.”
The U.S. economic uncertainty, paired with lack of concrete details in Europe’s debt crisis caused gold to gain back most of its loss in recent months. The precious metal rebounded nearly 20% from its loss in October. Currently, Gold is at a three week high and headed for its third straight week of gains, the longest winning streak in more than two months. “Throughout history gold has protected people from the sort of turmoil that we’re seeing” said Mark O’byrne, executive Director of Dublin-based brokerage GoldCore Ltd. “it’s an important thing to own when there is this sort of volatility in stock markets and concern about currency devaluations”
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