Over the past year, gold prices have shown an upward tendency but still there is no sign of relief in the markets. Recent debt crisis in Europe and the troublesome turn of events in the United States has again brought the attention of global investment community back to gold.

According to the Wall Street Journal, gold prices have rallied 25 percent this year as the risk appetite of investors has declined in the so-called safe havens of investment like treasuries and dollar.

The global economic environment is very uncertain with mounting debt debacles in the Euro zone leading to stringent austerity measure that eventually led to the weakening of Greek, Portuguese, and Irish economies. According to Mitsui Precious Metals analyst, when a metal has four to five distinct reasons to grow in value it would be foolish to not be bullish on it.

In recent weeks, gold has jumped nearly 8 percent, biggest rally since November 2008, for three days. Yellow metal gained $132.50 or 2.4 percent after downgrading of US credit rating by S & P from AAA to AA+.

Gold prices continued to boost when the Federal Reserve promised that it will keep the interest rates near zero till 2013, in a bid to keep the cost of borrowing low. and would consider further steps to help growth.

The drastic drop in Dow Jones Industrial Average of 400 points on Wednesday and over fear of slippery European economies extended the rally in market that moved the gold prices to hit a record high of $1801 a troy ounce beating Tuesday’s mark to take all time record.

Investors are avoiding anything that poses the slightest degree of risk, the sovereign debt crisis that engulfed US and few economies of the Euro zone have intensified their hunt for more secure and stable vehicle for investment.

Paul Christopher, international market strategist at Wells Fargo, said the appetite for gold is getting out of hand for retail investors. As equities tumble and debt woes mount record breaking rally of gold sparked after the US reached last minute deal to raise its debt ceiling and later S&P’s downgrade of US debt shattered the confidence in US treasuries.

Gold has been considered a store of value or an investment vehicle that can be relied on in times of inflation or deflation; in both cases when the value of money, in terms of purchasing power, is shaken.

The sporadic rise in demand for gold in recent days comes by the fear in the markets about faltering economic recovery and rising unemployment, infused the high degree of sense of security for investment in gold.

Gold and US treasuries were seen as the most secure form of investment in the world, and even many central banks are net purchaser of U.S. treasuries for a long time, but historically low interest rates, weak US dollar and infusion of trillions of dollars in the system in U.S. has generated fears of inflation thereby causing a major shift in investors sentiment with respect to U.S. treasuries.

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The downgrade of the United States’ AAA status less than a week after the last minute debt agreement has left the world’s stock market fending for stability. In Europe, the already shaky eurozone began buying Italian and Spanish government bonds to slow down the panic over the European debt crisis. Asian markets, which opened earlier, saw a sharp drop. All eyes are currently on the U.S. stock which will open soon.

The historical downgrade was not expected to cause severe damage to the economy as Standard and Poor’s move could not have come as a surprise. “S&P doesn’t know anything that investors don’t already know, so the downgrade should not change expectations and interest rates,” said Martin Feldstein, a Harvard economist, to CNN. However, the downgrade caused turmoil over the weekend as Republicans and Democrats started throwing mud and the finance ministry in Washington lashed out at S&P, determining that there had been a calculation error of no less than 2.000 billion dollars. Judging by the error, the credibility of S&P should be reconsidered, according to an anonymous official.

In the unusually harsh comment that followed the downgrade, S&P argued that their decision was based on the unpredictability of the government and not the economy. They do not believe that the new debt deal guarantees the reduction of the government’s record-high deficit and would rather have seen a reduction of around $4.000 billion over the next 10 years instead of the agreed terms of roughly half that figure. S&P were neither hesitant to point out that the tax cuts that President George W. Bush introduced a few years ago should end by the end of 2012.

The $4.000 billion reduction was in fact a part of Obama’s plan during the debt negotiations and S&P made it clear that such initiative would have saved the country from the downgrade. Despite both parties taking a hit in the statement, S&P did not attempt to cover their sharper tone towards the Republican Party. The President’s supporters reacted by saying that Obama had been on the right track and had it not been for the irresponsible Tea Party fraction in the Republican camp, this would not have happened. Meanwhile, the Republicans deny the accusation and presidential candidate Mitt Romney framed the downgrade as another disturbing sign of how the country has gone down hill under Obama.

More than one news source has aired the question of Standard & Poor’s credibility. Critics call it the move they didn’t have the guts to make before the financial crisis and blame S&P for trying to make up for past mistake with a delayed and untimely decision. Others point to the fact that the two other firms Moody and Fitch Rating have yet to come up with their own analysis.

It might be days or weeks before the real damage will show, but for now we can rest assure that the 2012 election will take on this new debate with a vengeance.

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