Gold hit a fresh all time high at US$1,583 per ounce today after Moody’s downgrade of Ireland put safer assets in demand.
Today, Ireland became the latest euro zone member to see its debt rating cut to junk status by Moody’s, joining Portugal and also Greece.
Greece nearly escaped bankruptcy last month.
As a result of the move, fears that the debt crisis will spread across Europe and cause another financial meltdown intensified, driving up the borrowing costs of several peripheral European countries.
Demand for riskier assets was low, while gold looked an attractive option for wealth protection amid a weaker US dollar.
The American currency eased after chairman of the Federal Reserve Ben Bernanke said that the central bank was ready to implement another round of quantitative easing to spur the economic recovery.
Bernanke added that the Fed could also cut reserve requirements for banks, allowing them to increase lending.
Last week’s poor jobs report was interpreted as a sign that the recovery is off track.
The payrolls data from the US government revealed that the economy added just 18,000 jobs in June, while analysts were expecting to see a gain of well over 100,000.
The Fed has just concluded a US$600 billion bond buying programme it launched last November in hopes to raise inflation and encourage more spending.
Another round of stimulus by the Fed would weaken the US dollar and boost gold’s appeal as an inflation hedge.
Silver and platinum moved in the same direction as the yellow metal, rising to US$37.87/oz and US$1,764/oz respectively this afternoon.
Fresnillo (LON:FRES) led the mining sector in mid afternoon, surging 5.6 percent. Randgold Resources (LON:RRS) followed, tacking on 2.5 percent.
In the FTSE 250, African Barrick Gold (LON:ABG) rallied 4.6 percent, while Petropavlovsk (LON:POG) and Aquarius Platinum (LON:AQP) added 2.3 percent and 2 percent respectively.
Anglo Asian Mining (LON:AAZ) and Ariana Resources (LON:AAU) were among the top performing small caps. Both companies added around 6.5 percent in afternoon trade.