The spot price of gold set a new all time record nominal high of $1,920 per troy ounce in early trading. The long awaited $2,000 per ounce level is now well within reach in a very short timeframe. Nevertheless we should be wary, there is no such thing as a straight line up in markets and we can expect increased volatility to be a feature of the parabolic rise of gold. In fact since the key level of $1,764 was broken in August, we have seen some very heavy turbulence, with an 11% drop triggered by margin hikes and an equally rapid recovery driven by physical demand.

The price of silver is exhibiting strong volatility, zigzagging sharply from $42 to $43 per ounce. Such accelerated range trading is usually a precursor to a major move.

As James Turk told King World News yesterday, there is a key difference between this leg of the financial crisis and the 2008 crash. This time investors are not rushing to liquidity, they are already in cash, rather there is a flight to safety as doubts grow over traditionally “safe” and “zero-risk” assets and investors rediscover real safe havens.

The first of these traditional safe havens that are increasingly seen as having feet of clay is the US dollar and dollar denominated bonds. Since almost the entire edifice of global finance over the past 40 years has been built on the foundation of the dollar, absolutely everybody and every financial instrument will be affected if this foundation proves not to be solid. There are no watertight compartments separating the dollar from the euro and the yen. They are joined at the hip and systemic risk, be it in the form of a sovereign debt crisis or a banking crisis, will jump from one currency zone to the other without pausing for breath.

So investors, savers, anyone with wealth or capital to preserve is looking for protection and the only protection which is not part of the current system is to be found in precious metals and other tangible assets.

Tags: dollar, euro crisis, fiat currency, gold price, silver price, sovereign debt

Author: The GoldMoney News Desk