Gold hits record high on US debt worries

Added by Erik West on July 14, 2011

The price of gold hit an all-time high at $1,594.16 an ounce and the US dollar fell during trading on Wednesday amid concerns that the US could default on its debts.

The US dollar declined 0.2% against the Euro, and to 79.00 Japanese Yen, at one point as low as 78.45 Yen – the lowest since March 2011.

US Federal Reserve Chairman Ben Bernanke warned that default by the US would cause a major crisis. To avoid default, US lawmakers must agree to raise the US debt limit by August 2.

In response to concerns that further stimulus spending is needed in the US, Chairman Bernanke remarked that there is a possibility of further stimulus spending if the US economic situation becomes worse.

China, which holds about $1.15tn of US debt expressed concern about the prospect of further Federal Reserve stimulus spending. Foreign Ministry spokesman Hong Lei said “We hope the US government adopts responsible policy and measures to ensure the interests of investors”.

China is concerned that further stimulus spending would increase global commodity prices, which are traded in US dollars, adversely affecting China’s economy.