The New Gold Standard?

To what can we attribute golds ability to do well in the middle of such economic turmoil?

Monday, after the S&P warned the government about downgrading the credit rating, gold reached a new high in the middle of a market that got crushed because of the news.

On tuesday, gold rose again $4.90, and finally settled over, for the first time, $1,503.20 a new nominal high. The precious metal is also up 5.8% so far this year.

Golds new role as a safe heaven makes sense once you've taken current events into account. Among them, the S&P's downgrade that managed to speed up the decline of an already weak dollar. Downward pressure on the currency is only expected to continue as the Fed is prone to maintain interests rates low, and downplay inflation. A Wall Street Journal article claims that the main driver for the dollars decline is low interest rates in the U.S with rising interest rates abroad. For the first time ever, next week, Bernanke is going to answer the media's questions about the Feds plans.

The currency is also been undermine by a divided government which, in the mean while, doesn't seem to be able to find common ground between the plans both parties have proposed to reduce the massive budget deficit that faces the nation. It's the worries about this topic that's intensifying the selloff, and even more when the S&P threatened the government to take away the coveted AAA credit rating.

Moreover, the metal has also rallied despite financial turmoil in Europe. The ECP, along with the People's Bank of China, recently increased interest rates. Investors are also concerned about the euro's outlook, as the sovereign debt crisis across the atlantic worsens, and investors look for safety behind the precious metal.

Also, the resiliency of the unrest in the Middle East, and the beginning of economic recovery in Japan, make gold the perfect safe haven.

Before investing in this gold extravaganza, you have realize that the gold market is relatively small when compared to the bond and stock market, and as such is highly more volatile.

Furthermore, many claim the metal's momentum is highly dependent on whatever resolution it's found to these issues. Another Wall Street Journal article talks about gold losing its allure once the investing environment turns back to normal and "where growth is sustainable without extraordinary government support".

Next week should be very interesting to see how soaring gold prices react to what Mr Bernanke has to say about the Fed's plan in the first ever press conference conducted by the head of the Federal Reserve. In my opinion gold is prone to reach new highs just because resolution to any of this problems remains very unclear, and as long as there is no resolution, gold prices will remain escalating.

In this turbulent market it's safer to turn to investments that seem to have less variables attached to their rise, and the gold market without CEO scandals, unmet earnings, etc, seems a lot safer. As long as national and global economic turmoil keeps sending investors running for cover behind a golden shield, gold will keep rising, and as things are shaping up there's a lot of room left to climb.