This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Gold Prices Spike on Safe-Haven Appeal, South Korea Buy

NEW YORK (TheStreet ) -- Gold prices hit record highs Tuesday as the Bank of Korea bought more gold and as the Senate passed the debt ceiling deal.

Gold for December delivery popped $22.80 to close at $1,644.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,646.80 and as low as $1,618.80 while the spot gold price was skyrocketing almost $30, according to Kitco's gold index.

Silver prices added 78 cents to close at $40.09 an ounce. The U.S. dollar index was up 0.22% at $74.48 while the euro was down 0.36% vs. the dollar.

With the debt-ceiling issue basically behind U.S. markets, investors are now looking at the health of the economy and the picture isn't bright. Worries of slowing global growth were the main factors boosting gold prices.

Not only have quarterly growth numbers been anemic and July's manufacturing index was barely above the critical 50 growth-mark, but the debt plan aims to slash spending by $2.5 trillion in the next 10 years, making it even harder for the U.S. economy to grow. The lingering risk of a downgrade of America's credit rating was also a factor as the major U.S. equity indexes were all losing more than 1% in late trades.

Beyond the safe-haven appeal of the yellow metal on a down day for stocks, Bank of Korea announced it has bought 25 tons of gold over the past two months. The stake is valued at $1.24 billion, or roughly $1,550 an ounce, and it marks the country's first gold purchase since 1998. Central banks tend to buy gold when they need to diversify or increase their holdings as mandated by the government and are not necessarily market timers, but they do buy as a long-term investment.

The purchase brings Korea's total gold holdings to almost 40 tons, still a fraction of the bank's total reserves compared to the U.S. or Portugal, which hold 74% and 84% of their reserves in gold, respectively, according to the World Gold Council.

The news does underscore the fact that central banks have become net buyers of gold, however, adding a huge floor under the gold market and reminding investors that countries are purchasing large quantities. Official sector buying in the first quarter was 129 tons, according to the World Gold Council's Gold Demand Trends report, led by Mexico which bought 93 tons.

"There has been a fundamental shift in the behavior of central banks," says Natalie Dempster, head of government affairs for the World Gold Council. "Central banks on the whole have been net sellers of gold for the past two decades."

Since the second quarter of 2009, however, central banks from emerging market countries have transitioned into net buyers. One of the biggest buyers is China. Over the past five years, the country increased its gold holdings to 1,054 tons from 600 tons. China currently holds only 1.6% of its reserves in gold. Dempster says that if the continent were to reallocate its holdings to 3%, it would need to buy 1,000 tons of gold.

China is the world's largest gold producer and vies with India for title of largest gold consumer. Nigel Moffett, head of treasury at Gold Corp. says, "[China is] the world's number one producer, producing 340 tons of gold a year. You don't see any of that coming out of China. You see a lot of gold going into China." Moffatt believes that its central bank is a prominent buyer.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,979.13 +59.54 0.35%
S&P 500 1,986.51 +4.91 0.25%
NASDAQ 4,526.4820 -1.0320 -0.02%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs