By Javier Blas

Published: November 24 2010

Gold prices denominated in euros hit a five-month high on Wednesday as concerns about the eurozone sovereign debt crisis swept across financial markets.

The surge, which reflects investor buying in Europe and the weakness of the euro against the US dollar, pushed the cost of gold to a level last reached at the peak of the Greek debt crisis in June.

James Steel, precious metals strategist at HSBC in New York, said in a note to clients that it was difficult to envisage the sovereign debt concerns abating in the near term.

“If the EU authorities cannot construct an effective firewall between Ireland and the other peripheral EU nations then sovereign stresses will not persist but could spread to the benefit of gold,” he said.

Euro-denominated gold rose 0.8 per cent to €1,037.92 a troy ounce, a level above which it has only traded on three days in June, when it reached a nominal record high of €1,050.86 an ounce.

The euro fell against the dollar to a session low of $1.3284, also a two-month low, and 7 per cent below an 11-month peak of $1.4281 set this month.

Gold was also buoyed by escalating tensions on the Korean peninsula as Russia warned of “colossal danger” after North Korea launched an artillery barrage against a South Korean island.

In dollar terms, spot gold in London traded at $1,375 a troy ounce, little changed on the day. Bullion was also little changed against other leading currencies.

Analysts and investors see further upside potential for gold next year amid sovereign debt concerns in Europe, fears about inflation in emerging countries and volatile currencies.

Gold prices in dollars hit a nominal all-time high of $1,424.10 an ounce this month. In real terms, adjusted for inflation, prices remain below their 1980 peak.

Gold’s sharp rise is delivering hefty profits to some of the world’s largest hedge fund managers, including David Einhorn of Greenlight Capital and John Paulson of Paulson & Co, who have invested heavily in gold as a way of betting that central banks would fail to preserve the value of paper currencies.