Where now for investors?

The FTSE 100 (UKX) is currently a lightning rod for a series of concerns and developments that are much bigger than the phone-hacking scandal.

With contagion alarm, debt crises and the news that eight banks failed stress tests and a further 16 are near the danger zone, there is plenty of gloom to keep investors cautious.

More woe came on Monday, as Moody's rating agency downgraded Ireland's credit rating to junk status, bracketing it with that of Greece and Portugal.

But the bad news is not only across the Channel.

On the other side of the Atlantic, President Obama held further private meetings with congressional leaders on Friday as he tried to avoid a debt default.

He has until 2 August to raise the debt ceiling and his plans to raise taxes are being fiercely opposed by Republicans who believe the move would stifle investment growth and employment prospects.

Thursday's downgrading of US debt by Standard & Poor's followed Moody's similar move.

Looking ahead, David Jones, chief market strategist at IG Index, points out: "It's another big week for US earnings with IBM (IBM) amongst the companies reporting today, but even stellar numbers here are unlikely to lift the debt-induced gloom."

"Incredibly worried"

With all this happening in just a few short days, it's hardly surprising that Nick Clegg said he is "incredibly worried" that the world is on the brink of another financial crisis.

The Deputy Prime Minister told Andrew Marr on his BBC show on Sunday that his main concern was that negative economic developments on the continent would directly impact UK jobs.

He said that it was foolish to think that Britain was able to "wash our hands of it" because the country was not a member of the eurozone.

On Thursday, when European leaders convene their emergency summit, they hope to approve a plan for private-sector involvement in bailing out Greece and prevent it from defaulting on its £500 billion debt.

European Central Bank (ECB) chief Jean-Claude Trichet has already called on governments to stick together, but he reiterated the ECB's position that it will not accept Greek bonds as collateral for loans if the country defaults on its debts.

"We remain very concerned about the state of the European banking system and particularly the knock-on effect that a sovereign default would have on UK banks," says Charles Stanley analyst Nic Clarke.

He believes that to really improve sentiment those EU banks at the shallower end of the regulatory capital pool need to bolster their regulatory capital by tens of billions of euros, rather than the €2.5 billion suggested for those who have failed the stress test.

Clarke says he currently remains wary of some banking stock including RBS (RBS), Lloyds (LLOY) and Barclays (BARC) and favours Standard Chartered (STAN) and HSBC (HSBA), due to their superior capital and liquidity positions and exposure to faster growing Asian markets.

But a broader perspective comes from the trading floor. Louise Cooper, market analyst at BGC Partners, advises: "Take your eyes away from bank share prices and refocus onto the wholesale funding markets. For banks in Greece, Portugal and Ireland, the only place they can borrow money is the ECB. For Spanish and Italian banks, if they can persuade companies or banks to lend them money, then they have to pay a higher interest rate or offer collateral on the loan."

Cooper says the spread on interest rates between those banks perceived to be safe and those that are not, is still widening and she believes the European Banking Authority is out of touch with the markets and what is required.

"There are serious warning signs in wholesale lending markets and they should not go unheeded (remember Lehman's?)."

Where are investors heading?

Domestically, Clegg's comments coincided with a warning from consultants Ernst & Young that the UK growth will slow this year as business confidence here is knocked by events in Europe.

The company's Item Club has lowered its forecast for UK growth for the second time this year, predicting a rise in GDP of just 1.4% against a previous reading of 1.8%. The group predicts that GDP will increase by 2.2% next year, which is a reduction of 0.3% on its previous forecast.

The Federation of Small Businesses has also spoken out about growth and believes the cure could lay with VAT and that targeted cuts of 5% are needed in key sectors of the economy such as construction and tourism.

As concerns grow, the Bank of England can expect the minutes of its latest Monetary Policy Committee meeting, released on Wednesday, will be under greater scrutiny than usual as clues are sought on potential base rate moves.

Meanwhile, many have already turned to the ultimate safe haven; the price of gold has soared as nervous investors around the world piled in. It broke through the $1,600 barrier to set a fresh record high on Monday with some commentators anticipating it passing the $2,000 level soon if european jitters continue.

Ben Critchley, sales trader at IG Index, points out that of the handful of stocks which have managed to find positive territory at the start of the week, two are metals plays.

"Fresnillo (FRES) and Randgold Resources (RRS) are both charging ahead supported by rising gold and silver prices."

Other success stories from Monday include African Barrick Gold (ABG) and Shanta Gold (SHG) - both focused on Tanzania -  as well as South Africa-focused Central Rand Gold (CRND),  West Africa's Cluff Gold (CLF) and Australian miner Norseman Gold (NGL).

But plenty of large and small gold mining stocks are in the red. So look before you leap.

Get more on the rising gold prices, read: Gold goes through $1,600 to new record high.