Gold hits new record near $1,830 an ounce

August 18, 2011: 2:27 PM ET
gold, commodities

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NEW YORK (CNNMoney) -- Gold prices are again marching in record territory, nearing $1,830 an ounce, as the global economic picture gets uglier by the minute.

Gold jumped 2% to hit an all-time high (not adjusted for inflation) of $1,829.70 an ounce Thursday morning, as jittery investors dumped risky assets like stocks and rushed into traditional safe havens, including gold and U.S. Treasuries. Gold closed at $1822, up 1.6% for the day.

Buying of U.S. debt was so heavy that it sent the 10-year yield below 2% for the first time in history.

The worries began to intensify overnight, after Morgan Stanley slashed its global growth forecast and warned that the U.S. and Europe are "dangerously close" to a recession.

Early in the morning, jobless claims and inflation -- which gold is often used to hedge against -- rose more than expected.

And just after the U.S. stock market opened for trading, the signs of an economic slowdown got much worse.

Manufacturing activity in the Philadelphia region contracted to a level last seen in March 2009, when the U.S. was still in a recession. In addition, existing home sales tumbled.

The gold rush is on

"Investors are running scared into gold because of the persistent problems and recession-like performances in Europe and United States," said Jeffery Nichols, senior economic adviser at Rosland Capital and managing director at American Precious Metals Advisors.

Gold prices also got support after Venezuela said it is planning to nationalize the county's gold industry to reduce smuggling.

President Hugo Chavez said he will move Venezuela's gold reserves out of foreign banks in the U.S. and Europe into those in Russia, China, Brazil and South Africa.

"That type of action just underscores the concerns of central bank reserve managers over the conditions across international economies and financial markets," said Nichols.

Meanwhile, a report from the World Gold Council Thursday showed that global demand for gold slumped 17% during the second quarter compared to a year earlier. At that time, Europe's debt crisis raised the safe harbor appeal of the precious metal. But demand in India and China continued to grow at a robust pace.

Still, with prices at record highs, the demand in value terms rose 5% to $44.5 billion over the second quarter of last year, the second-highest level on record.

The London-based group expects that Europe's debt problems, the downgrade of U.S. debt, inflationary pressure and a fragile outlook for economic growth are likely to fuel heavy investment in gold for the foreseeable future.

While those broad factors will likely support gold at a price of around $1,850 an ounce to the end of next year, Nichols said the yellow metal is vulnerable to a short-term correction given the recent "swift run-up."

Since the start of July, gold prices have surged more than 20%. They are up almost 30% in 2011, and 50% during the past 12 months.  To top of page

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