Gold soared to a new all time high yet again, hitting $1,877 in the European session today. Investors were pushed to the safe haven investment to protect their assets as concerns are growing over a faltering global economy, exacerbated by weak U.S. data signalling the worlds’ largest economy may slip into recession. Added to those concerns are debt contagion fears as Europe’s debt crisis pressured short-term funding markets.
European banks may be faced with a liquidity crunch as funding costs more now since rates for U.S. dollar loans are higher now, raising fears the euro region debt crisis could infect the banking and financial system.
Meanwhile, U.S. economic data released on Thursday indicated factory activity in the U.S. Mid-Atlantic region fell to the lowest level since the height of the recession in March 2009. This fuelled that the top economy could shrink again, boosting the appeal of safe-haven gold.
News yesterday that one unnamed bank in the euro zone has been forced to borrow USD500-million from the European Central Bank to maintain the flow of funds to its business sent shock waves through the financial markets. It was the first time a euro-zone bank tapped the ECB for such funding since February. Though the loan involved a relatively small amount, it was the largest sum any bank had sought from the ECB in two years under a program that ensures European banks have sufficient access to U.S. dollars for liquidity. Lack of access to U.S. dollar financing was a key element of the 2008 crisis for European banks.
After peaking at a record high in intra-day European trading, gold soon eased off its peak to fall to $1,840.72 as investors took the opportunity to book some profits.