The price of gold topped $1,800 an ounce for the first time, as concern about Europe's debt problems intensified Wednesday.
French President Nicolas Sarkozy cut short a vacation and pledged to slash France's huge debts on fears that the country may lose its AAA credit rating. Although rating agencies reaffirmed France's top-notch rating, the downgrade of U.S. debt by Standard & Poor's last week fueled worries that France could be next to lose the coveted and rare rating if it contributes to further bailouts of eurozone countries.
Investors are already worried Italy and Spain will be the next countries unable to repay their debts. The European financial system has been battered by fears about banks holding bonds of heavily indebted countries such as Greece and Portugal.
The concern is that if European governments default on their bonds, it will hurt the European banks that own them. That could start a chain reaction that hurts the United States, because large U.S. banks have loans to European banks. Investors looking for a safe place to put their money pulled out of stocks and snapped up precious metals contracts.
Some investors view gold as a safer bet. Its value, unlike that of a currency, such as the U.S. dollar, doesn't hinge on whether countries can make their bond payments, or on the vigor of their economies.
December gold contracts backed off their highs, and closed up about $41 at $1,784 an ounce after reaching a record $1,801 an ounce earlier in the day on the New York Mercantile Exchange. The Dow Jones industrial average fell more than 500 points. The Dow, Nasdaq and Standard & Poor's 500 index all slid more than 4 percent.
Gold prices have shot past a series of milestones over the past two years. Gold was trading at about $900 in the summer of 2008, before the financial crisis unfolded that year. It first passed $1,600 in late May.