Gold's cross-currency strength signals its evolution

By Reuters Mar 15 2010 , London

Gold's rally to record highs in euro and sterling terms and the resilience of

spot prices in the face of a rising dollar is sign-postingthe metal's broadening insurance appeal, as sovereign debt fears shift to the fore.

Worries over Greece's fiscal outlook created a perfect storm for euro-priced gold this month, as some investors selling the single currency chose bullion as an alternative.

News that the next UK general election could result in a hung parliament, making it harder for an incoming government to tackle Britain's debt, sparked a similar rally in sterling gold, taking it to a record 759.86 pounds an ounce.

Investors' growing sensitivity towards sovereign risk is starting to suggest dollar-denominated gold can maintain strength even as the dollar rises -- usually a prime factor pushing the precious metal down.

"Gold is holding up very well given the foreign exchange market movements, and you have to ask why that is," said GFMS Chairman Philip Klapwijk. "Sovereign debt is very high up the agenda at the moment."

Spot gold held above $1,115 an ounce on Wednesday, off the record high of $1,226.10 it hit in December but still above the $1,096.25 at which it started the year.

The dollar has gained nearly 4 percent versus the euro in that time, largely on fears over fiscal issues in Portugal, Italy, Ireland, Greece and Spain.

GLOBAL RISK

But sovereign debt issues don't stop there. In January the World Economic Forum said the risk that deteriorating government finances could push economies into full debt crises was the main threat facing the world in 2010.

The U.S. fiscal deficit is projected to reach $1.56 trillion this year, Japanese debt is nearing 200 percent of GDP, while Fitch Ratings said earlier this week that Britain's sovereign credit profile has deteriorated.

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