Gold price jumped during crunch
Updated on 15 November 2008
The price of gold has jumped by nearly a tenth since the credit crunch first struck as investors look for a safe haven for their money, figures have revealed.
Gold currently costs 729 US dollars (£490) an ounce, 8% more than it did in August last year, according to investment group Clerical Medical.
A combination of the uncertainty in the financial markets, rising inflation and the weakening US dollar all helped to push up the price of gold.
By contrast, the price of shares has dived since the problems caused by the credit crunch first emerged, with the FTSE 100 falling by 28% and the US's Dow Jones dropping by 30% during the same period.
The 8% increase in the price of gold since August last year is five times the rise in the gold price seen during the 14 months before the credit crunch struck.
But the gold price has fallen by 28% in recent months after reaching a record high of 1,012 US dollars (£681) per ounce - 59% above its five year average of 593 US dollars (£399) per ounce. It reached this high after soaring by 32% during 2007, the biggest annual gain during the past 28 years, and significantly higher than the typical growth in commodity prices of 21%.
But the recovery in the value of the dollar, combined with concerns over the impact the weakening global economy will have on demand for gold has caused its price to fall in recent months.
However, the decline should be seen in context, with the price of gold rising by 149% between 1998 and 2008, nearly double the growth in commodity prices of 82% during the same period.
Martin Ellis, chief economist at Clerical Medical, said: "The average price of gold reached a record high in March as investors sought to safeguard the value of their investments against a backdrop of financial market turmoil, rising inflation and a weakening US dollar. Gold prices, however, have fallen back since then with the strengthening in the value of the US dollar a key factor behind this reversal."
Going forward, the price of gold is expected to continue falling as the deteriorating economic outlook reduces demand for the metal among manufacturers. Falling inflation will also make gold, which is seen as the ultimate store of value, less attractive to investors.
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