Gold Breaches $1,615 Over Cyprus Fears

Gold Breaches $1,615 Over Cyprus Fears

The fear trade was back in the spotlight this week, with gold hitting a three-week high on Thursday amid the threat of economic chaos over Cyprus.

The small Mediterranean island was hurt badly by the Greek debt crisis and needs a bailout of staggering proportions — 10 billion euros — to avoid bankruptcy. Earlier this week, the country shocked the world by announcing that part of the bailout plan would include taxing the deposits of ordinary citizens in an effort to raise the money. That plan was later voted down by the Cypriot parliament, which put more pressure on Cyprus to raise a 5.8-billion euro shortfall.

A plan to appeal to Russia, whose tycoons have stashed an estimated $31 billion in the country due to its status as a tax haven, appears to be falling on deaf ears, The Economic Times reported.

If Cyprus fails to come up with a bailout plan by Monday, the European Central Bank could cut off emergency funding to its banks, pushing the country into bankruptcy.

The crisis in Cyprus has again thrust the instability of the Eurozone into the spotlight as investors fret over the future of the single currency. Of immediate concern is that Spain, Italy and Portugal could follow Cyprus' example and go after the savings of the citizenry if their need to raise cash becomes desperate.

The shenanigans in Cyprus this week set the stage for fresh safe-haven gold demand, and the precious metal did not disappoint.

On Monday, gold leapt 1 percent, to a 13-session high of $1,608 per ounce, as global stock markets sank lower and major-government bonds rose.

"Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere," reported Bloomberg with a video of protesters taking to the streets.