Recently, the gold price broke through the $1600 level for the first time in decades. Increasing concerns about the debt crisis in Europe and a possible crisis in US debt have investors worried about the global economic recovery, while China’s growth figures have dropped for the first time in decades. Is gold a favourable investment in these uncertain times?
The recent crisis in Greece alerted investors to the problems faced by countries in the EU and the effects that could be felt by the Euro, long seen as a stable currency and an alternative to the Dollar. Although the Greek bailout has been approved, there are concerns about Portugal and Ireland who may also require financial assistance. More worrying however is the risk of debt crises in Spain and Italy – two economies that are simply too big to bail out.
At the same time, US lawmakers seem unable to reach an agreement on raising the so-called debt ceiling – the amount of government debt that the US is allowed to run up by law. Both of these events have investors worried about the economic outlook for 2011.
It’s about speculation. The confusing aspect for many investors when it comes to the debt crisis is that these negative effects will only be felt if the debt crisis spreads through Europe and if the US government fails to reach an agreement on the debt. If these two issues are resolved for the better, the global economic recovery could be unaffected. Only time will tell, and while they watch the political scene closely, investors have put their faith in gold.
Many managed funds have exposure to the gold market, and if you have invested in unit trusts you are likely to benefit from the rising gold price. Speak to your financial advisor, who may advise you to adjust your investments to suit the current climate.