Gold is soaring as investors worry Europe's debt crisis cannot be fixed. Photo / Thinkstock
Gold is soaring as investors worry Europe's debt crisis cannot be fixed. Photo / Thinkstock
Global spot gold prices rallied to near-record levels as the European debt crisis, centred on Italy and Spain, deepened and investors sought safer havens.
Gold, which hit a record US$1575 on May 2, was yesterday trading just US$5 below that, having appreciated about 6 per cent in the past fortnight.
The European Union has opened the door to a complete overhaul of the region's bailout fund, which has so far handed out rescue loans to beleaguered countries in return for high interest rates and painful austerity measures.
While Eurozone finance ministers have been pushed to act only when the markets gave them no choice, Italy has sped up approval of its austerity plan.
Forsyth Barr broker Peter Young said European stocks hit a four-month low in Tuesday trading and the lack of political consensus to tackle the debt crisis had kept investors on edge.
Young said trading on European exchanges was heavy, with volumes on France's CAC 40, Spain's IBEX and Italy's FTMIB nearly twice their 90-day daily average.
The European markets nosedived on worries that the eurozone's third- and fourth-biggest economies, Italy and Spain - both too expensive to save with Europe's rescue funds - may become the next victims.
Young said the eurozone's blue chip Euro STOXX 50 fell to a near one-year low, Italy's FTMIB bounced back after a two-year low, while Greece's ATG tumbled to a 14-year low.
The financial markets hammered European assets after eurozone finance ministers opened up the possibility of a Greek default and failed to prevent the contagion spreading to Italy and Spain.
Craigs Investment Partners broker Peter McIntyre said US stocks finished down for their third consecutive day, in part because international rating agency Moody's had further downgraded Ireland's credit rating, which "added to the fear of spreading contagion".
"[Investor] fears over the spread of the sovereign debt crisis continued to drive selling, although a relatively successful Italian debt auction helped put a floor under losses."
