On Friday Standard Poor’s downgraded the US’s credit rating from AAA to AA+ and people since then have flocked to buying gold. The value of an ounce of gold surpassed $1,700 for the first time today.
Fears that the world’s main markets are severely indebted have given the precious metal its appeal. Its worth, unlike that of money, doesn’t depend on countries paying their debts.
The credit downgrade was expected by some, but economists are unsure of the long term affects this will have on the US financial crisis. One possible outcome is mortgages rates could increase further damaging the housing market.
SP blamed the downgrade on the political standstill in Washington and believes the US government has reached the position where it would be incapable of dealing with deteriorating deficits.
Gold’s value has almost doubled since the beginning of 2009.
In an effort to avoid widespread fear across economic markets, the Group of 20 industrial and developing world countries released a joint statement Monday saying their commitment to taking all essential measures to sustain financial stability and growth will not fall short.
Investors are troubled by the European debt crisis as well and two of the world’s key economies’, Spain or Italy, could default on their debts and could weaken the world economy even more.
“The U.S. and global economy are in a feeble “rehab” recovery and a trifecta of shocks has hit the economy — surging oil prices, the Japan disruption and the debt crises in Europe and the U.S,” wrote Ethan Harris, a Bank of America Merrill Lynch economist. The lowering of the US’s credit score could likely be “the ‘straw that breaks the camel’s back,’ ” said Harris.
Many economists say many factors played into the appeal for buying gold such as the dip in the stock market, the debt ceiling deal and recently the credit downgrade.
The largest reserve currency, the dollar, has lost some of its appeal because of concerns about the US’ capacity to cut its debt.