Gold briefly topped $1,500 (U.S.) an ounce on Tuesday amid continuing concerns about rising inflation and the financial health of the United States.
The move comes a day after Standard & Poor's warned the United States that its triple-A credit rating could be cut if it doesn't tame its surging deficits and rising debt levels. The rating agency cut its outlook to "negative" from "stable."
It also follows a reading on the Canadian consumer price index for March, which suggested that inflation is rising faster than economists and the Bank of Canada had expected - raising alarms that the trend could affect other economies as well.
Canada's inflation rate rose 1.1 per cent over the previous month, marking the biggest one-month gain in 20 years. So-called core inflation, which strips out volatile food and energy items, rose 1.7 per cent over the previous year - a huge jump over the 0.9-per-cent reading in February.
"Central banks are reviewing their assumptions that higher food and energy prices will not be passed through to other prices," Andrew Spence, global head of rates and foreign exchange research at TD Securities, said in a note. "The cost of being wrong would be significantly higher inflation and a policy response that would risk another recession to regain control."
Add to these concerns the softening U.S. dollar, continuing political unrest in the Middle East, and rising concerns about the European debt crisis following speculation that Greece is close to defaulting on its debt obligations, and it is little wonder that gold continues to march higher after hitting a succession of record highs this year.
Gold futures traded as high as $1,500.50 an ounce on Tuesday, before retreating below the threshold in late afternoon trading. Gold closed in New York at $1,495.10 an ounce, up $2.20.
Over the past five years, to the end of March, gold has scored impressive gains, rising 145 per cent versus a rise of just 14 per cent for the S&P 500. The dramatic move has coincided with surging U.S. government deficits and, more recently, attempts by the U.S. Federal Reserve Board to stimulate economic growth by printing money to buy government bonds - an experimental approach known as quantitative easing.
In recent months, though, the pace has slowed and gold's returns haven't been shining as brightly next to various other assets, even as bullish investors believe that the upward trend should continue.
For example, both Ed Sollbach at Desjardins Securities and Michael Pento at Euro Pacific Capital believe that gold will rise to $1,600 an ounce in 2011.
So far this year, gold has risen 5.4 per cent in U.S.-dollar terms, outmuscling the S&P 500 by just 0.6 percentage points after factoring in dividends. And in Canadian-dollar terms, gold has risen just 1.4 per cent this year, which is below the 2.2-per-cent gain for Canada's S&P/TSX composite index.
Meanwhile, gold isn't looking so great next to a broader basket of currencies, either. The Reuters/Jefferies CRB index of 19 commodities - which includes things that don't exactly excite the pulse, like lean hogs and wheat - has pulled ahead of gold this year, with a gain of 8.4 per cent. As well, silver has surged 42 per cent, stealing some of the attention as a safe haven investment.