Concerns over Europe could push safe-haven gold to US$2,000 per ounce

By Amanda Cooper, Reuters

LONDON–Gold has confounded market watchers by refusing to behave like a safe-haven and instead has tracked equities over the past few weeks, but the escalating European debt crisis could see bullion ditch its risk-asset mantle and return to record highs. The debt problems of some of the smaller eurozone states have mortally wounded the premierships of Greece’s George Papandreou and of Italy’s Silvio Berlusconi and hounded the euro to one-month lows against the dollar and eight-month lows against the pound as confidence evaporates over the ability of Europe’s leaders to stem the spread of the crisis. Gold has risen 4 percent this month, having touched its highest in 7 weeks above US$1,800 an ounce this week, still back from the US$1,920.30 record reached early in September, but pointing towards US$2,000 judging by current options positions.

Gold has risen by nearly a third in value over the last year, driven by a rising tide of liquidity from the developed world’s central banks including the U.S. Federal Reserve, the ECB, the Bank of England, the Bank of Japan and the Swiss National Bank, which have sought to anchor interest rates by lowering them, via purchases of government debt or by intervening in the currency markets. The options market shows the heaviest bets among investors is for gold to end the year at or above US$2,000 an ounce. For gold derivative contracts expiring at the end of December, most open interest on call options – which give the holder the right, but not the obligation, to buy an asset at a predetermined price by a set date -centers on US$2,000.