European Union sovereign debt crisis is much more serious than the U.S. debt woes and it could deteriorate into a worldwide debt contagion. Weak U.S. economic data means continued loose monetary policy and perhaps even more stimulus. This pressures the dollar and in turn supports gold. The prospects for a downgrade of U.S. debt could leave some investors worry about holding the dollar. As a result, the U.S. dollar index is trading lower, which means bullish for the price of gold. South Korea's central bank will spent more than $1 billion in its first gold purchase in more than a decade, joining the trend among central banks to diversify their foreign reserves amid global growth uncertainties.
There are another reasons for the current rush into gold commodities. The world economic, financial, and political trends and conditions have turned hostile since 2000, and consequently stocks and bonds have not done so well over the past five or six years, the decline in the dollar’s exchange rate, and insatiable Chinese demand for every commodity under the sun.
Gold commodities can stand up as equals to stocks and bonds as investments. Commodities traditionally were disparaged by financial markets, which saw them as more volatile, less profitable, and too complex to analyze. They had no book value per se, compared to stocks, and no yield like bonds. But commodities have gained new respectability and desirability as assets, and as an asset class comparable to stocks or bonds. Fund managers and others have realized that commodities are not necessarily more volatile than stocks, and that investing in commodities can be just as profitable as investing in stocks and bonds. Commodities can compete in terms of capital appreciation potential, generating profits themselves. They also are useful as elements of a diversified portfolio, helping to smooth out the risks of a portfolio of stocks, bonds, and other assets without significantly limiting the capital appreciation potential.