Euro zone debt fears lead to record gold prices

Spot gold has risen 11 per cent so far this year and has more than doubled in price in the last four years.

“Gold will keep rising for the next five years, even if it has some crests and troughs,” said Michael Widmer, an analyst at Bank of America-Merrill Lynch.

“Those holding gold should hold onto it, while others should probably get their hands on it as it is going to be on an upward trend.

“The sovereign debt crisis is helping the gold prices rise but even if it is addressed in the short-term, the developed countries are in so much debt that it will continue to drive gold up for the next 10 years.”

European Union leaders are expected to hold an emergency meeting tomorrow after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens’ debts and stop contagion spreading to Italy and Spain.

On the other side of the Atlantic, minutes of the Fed’s last meeting showed some Federal Reserve officials believe further monetary policy easing could be needed if the recovery remains too sluggish to cut the stubbornly high US jobless rate and if inflation eases as expected.

“The debt crisis is if anything escalating, with ratings agencies now downgrading Ireland into junk territory. You have had rethinking on what should happen,” said Credit Agricole analyst Robin Bhar.

“We’ll know more about thinking on the US when Fed chairman Ben Bernanke testifies, but it was interesting that the Fed, according to the minutes of the June meeting, seemed to bring about more thinking about quantitative easing... those Fed minutes seem to have stoked the fires (for gold).”

Mr Bernanke’s comments will be closely watched for any clues as to a further round of quantitative easing, a key driver of gold’s rally to record highs earlier this year as it kept US interest rates and the dollar low.