Enter gold as the ultimate surrogate currency

The gold price climbed $1.50 to $1,615 per ounce Friday morning, boosting by ongoing concerns that U.S. policy makers will be not reach an agreement to raise the debt ceiling by the fast-approaching August 2 deadline. The price of gold is hovering just under its all-time high of $1,626 per ounce. Despite a slightly stronger U.S. dollar this morning, precious metals held firm. Silver traded at $40.26 per ounce, unchanged versus its closing price yesterday.

The Beige Book’s cautious tone, coupled with the legitimate possibility of a U.S. default, helped the gold price tread water as investors liquidated other dollar-denominated commodities on Wednesday. Looking ahead, the economic backdrop for the gold price appears favorable, notwithstanding corrections due to broad-based market weakness. CIBC analyst Barry Cooper wrote in a note to clients that “the robust outlook for bullion remains intact as we continue to see debasing of currencies as the key contributor to gold’s rise.”

Cooper elaborated on his bullish gold price stance, noting that “We believe that for one of the first times in recent history, all three major currencies (U.S. dollar, euro, and yen) could be in jeopardy of depreciation but given that all are assessed against one another, the impact may be muted. Enter gold as the ultimate surrogate currency that is without debt encumbrances and we believe this is the reason to remain bullish on bullion.”