Debt crisis propels gold to a new record of over $1,600 per troy ounce

The debt crisis in Europe and the stalled negotiations on the debt ceiling overseas propelled gold to a new historic record of $1,600.10 per troy ounce in the early trading in London and to $1,601 on the New York stock exchange. Investors turned to the precious metal as a form of protection against inflation. This is the eleventh day of an increase in gold prices - the longest appreciation series since July 1980. Silver also gained support - its price exceeded $40 per troy ounce - the highest level since May 4 this year.

The results of the stress tests of banks, released on Friday, contributed to the additional market tension. Eight financial institutions failed to meet the requirement for the necessary share capital in a negative scenario of the crisis. They will have to raise the amount of €2.5 bn.

Another 16 institutions barely passed the stress tests and will also have to take additional measures but, according to analysts, the actual equity gap is €80 bn because the stress tests did include the option of a default by Greece. The results, as a whole, failed to disperse investors’ fears of the debt crisis in Europe and the shares of financial institutions plunged yesterday. The main indexes in the UK, France and Germany fell by between 0.9% and 1.4%. In early trading, the European banking sector plunged by 1.5%. The decline of Intesa Sanpaolo (ISP.MI), Unicredit (CRDI.MI), Deutsche Bank (DBKGn.DE), Societe Generale (SOGN.PA) and Barclays (BARC.L) was 3%.

The effect can be even more negative because of the ongoing negotiations on a new rescue package for Greece. European leaders are expected to gather at an emergency meeting on Thursday in order to agree on the second financial injection to the troubled country. It is likely to include the participation of the largest banking groups from the Old Continent, which are expected to voluntarily exchange Athens’ bonds with longer-term maturity securities, Reuters commented.

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