Gold prices rose sharply for the second day in a row, climbing to US$1,139/oz as the US dollar stayed in decline against other major currencies and investors sought safe haven assets such as gold amid volatility in currency and stock markets.
The euro rose against the US dollar after Greece introduced another round of austerity measures including VAT (value added tax) hikes and expenditure reductions including cuts of civil servants’ bonuses to save some €4.8 billion. Europe's single currency has recently hit 10 month low against the greenback.
The European Union has previously urged Greece to implement more austerity measured to reduce its budget deficit by 3% to hit the EU’s target for 2010. The first austerity package caused mass protests around the debt laden country, which is also gearing up for a bond sale to raise another €20 billion to pay off its debts that are due in April and May. Pound sterling, the Canadian dollar and the Australian dollar, which was on the rise after the country’s central bank hiked a key interest rate to 4%, all gained against the American currency, driving up US dollar-denominated commodities such as gold.
The yellow metal is seen as an alternative investment and usually moves inversely to the US dollar.
The world’s largest gold backed exchange fund SPDR said its holdings increased by 4.5 tonnes to 1,111 tonnes after declining steadily since the beginning of the year.
Other precious metals also did well with silver climbing to US$17.15/oz and platinum rose to US$1,577/oz.
Major mining stocks were on the rise today. Platinum producer Lonmin (LSE: LMI) took the led with a 1.7% advance, while Randgold Resources (LSE: RRS) and Mexico City-based silver and gold miner Fresnillo (LSE: FRES) added nearly 1%.
Specialty chemicals firm Johnson Matthey (LSE: JMAT) gained 1.5%.
Gold miner Petropavlovsk (LSE: POG) led the sector in the FTSE 250 with a 5.2% rally. Silver producer Hochschild Mining (LSE: HOC) and Aquarius Platinum (LSE: AQP) followed with gains of 1.5% and 1.8% respectively.
Most junior miners showed little movement. Philippines focused gold producer Medusa Mining (AIM&ASX: MML) was among the top performers with a 4% climb. Turkey and Saudi Arabia operating gold explorer KEFI Minerals (AIM: KEF) and Brazil focused gold miner Horizonte Minerals (AIM: HZM) were in decline, shedding 13% and 8.5% respectively.
Disclosure: The author holds no positions in the company