Gold Surges to Record as Debt ‘Turmoil’ Drives Demand for Haven
July 13 (Bloomberg) -- Christin Tuxen, an analyst at Danske Bank A/S, discusses the outlook for gold prices. Tuxen, speaking from Copenhagen with Owen Thomas on Bloomberg Television's "Countdown," also talks about volatility in silver prices and the performance of the U.S. dollar. (Source: Bloomberg)
July 12 (Bloomberg) -- Spencer Patton, founder and chief investment officer at Steel Vine Investments LLC, talks about the drivers of gold prices and investment strategy. Patton, speaking with Lisa Murphy on Bloomberg Television's "Fast Forward," also discusses the outlook for the oil market. (Source: Bloomberg)
Gold rallied to a record after Moody’s Investors Service placed the U.S. credit rating on review for a downgrade, U.S. debt-ceiling talks stalled and Europe’s sovereign crisis persisted, boosting haven demand.
Immediate-delivery bullion climbed as much as 0.5 percent to an all-time high of $1,589.80 an ounce, and was at $1,582.75 at 4:03 p.m. in Singapore. Federal Reserve Chairman Ben S. Bernanke’s comments that additional stimulus may be needed also drove the metal’s ninth day of gains, the best run since April.
The U.S., rated Aaa since 1917, was put on review for the first time since 1995, on concern the debt threshold will not be raised in time to prevent a missed payment of interest or principal, Moody’s said. President Barack Obama walked out of a meeting with legislative leaders on raising the U.S. debt ceiling, according to House Majority Leader Eric Cantor.
“Gold will benefit from the turmoil,” said Guo Hongjun, head of research at Haitong Futures Co., China’s largest futures broker by capital. “Another round of quantitative easing will hit the dollar hard, drive up prices of commodities including gold, increase inflationary pressures and slow the recovery.”
The contract for August delivery in New York also gained to a record, rallying as much as 0.3 percent to $1,590.80 an ounce. Cash silver jumped as much as 1.8 percent to $38.855 an ounce, the highest intraday price since May 11.
Fed Chairman Bernanke said the central bank is prepared to provide additional stimulus to bolster the U.S. economy, and warned a failure by Congress to raise the $14.3 trillion debt limit would send “shock waves” through the financial system.
$2,000 Target
(For a related story on the U.S. debt rating, click here. For a story on Greek debt levels, click here. To read a story on the performance today of currency, commodity and equity markets, click here.)
Gold may surge to $2,000 if the Fed starts a third round of U.S. debt purchases, according to Michael Pento, senior economist at Euro Pacific Capital Inc. “People will be forced into buying gold,” Pento said.
Gold’s rally triggered gains in related equities. Zijin Mining Group Co., China’s biggest gold producer by market value, jumped as much as 7 percent. Newcrest Mining Ltd. (NCM), Australia’s largest gold-mining company, climbed as much as 2.7 percent.
Gold has advanced 11 percent in 2011 after climbing for the past 10 years, the longest run of gains in at least nine decades. Central-bank buying and increased demand from individual investors has underpinned the rally. Dennis Gartman, the editor of the Gartman Letter, said in May that gold is the preferred “coin of the realm” during Europe’s sovereign-debt crisis.
Sovereign Concerns
The same “factors that have driven gold up in recent days remain firmly intact,” James Steel, an analyst at HSBC Securities USA Inc., wrote in a note. “These include sovereign concerns in the E.U., contentious debt-ceiling talks in the U.S., and general economic uncertainty.”
Ireland this week became the third nation in the European Union to have its credit rating cut below investment grade, helping to send gold priced in euros and pounds to the highest levels ever. Italy is due to sell government debt today amid concern that the crisis may be spreading to that nation.
Greece’s credit rating was cut three levels to Fitch Ratings’ lowest grade for any country in the world as the company yesterday followed rivals and said that a default is a “real possibility.”
The Dollar Index, a six-currency gauge of the dollar’s value, dropped for a third day, shedding as much as 0.7 percent today. Gold usually moves counter to the dollar.
Gold futures on the Multi Commodity Exchange of India Ltd. reached an all-time high of 22,989 rupees per 10 grams ($1,605 an ounce), while cash gold of 99.95 percent purity on the Shanghai Gold Exchange also jumped to a record 329.99 yuan a gram ($1,589.18 an ounce). India and China are the world’s largest gold users.
Spot platinum climbed as much as 1.2 percent to $1,775.30 an ounce today, while palladium advanced as much as 1.4 percent to $789 an ounce.
To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
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