Bank fears 'prompting gold investment'

Fresh concerns about the state of two US companies have prompted investors to seek gold bullion as a hedge against inflation.

It was revealed on Thursday (July 10th) that the government had begun contingency measures in case Fannie and Freddie were to fall.

As a result, the companies' shares dropped dramatically and people became worried that the incident would echo that of bank Bear Stearns, which folded earlier this year.

"Risk aversion has been sweeping through the markets this week," said Calyon metals analyst Robin Bhar to Reuters. "Obviously gold does well when there's heightened risk aversion, [such as] concerns about ... the financial system."

Fannie and Freddie buy home loans from banks that issue them, repackage those loans as bonds and either hold them as assets or sell them to the public. Roughly 70 per cent of US home mortgages pass through the hands of the companies.

Without them, it could soon become all but impossible to buy or sell a home, reports the Washington Post.

Gold prices have also been supported recently by geopolitical tensions, including mining strikes in Peru.

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