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Copper, Oil, Grains Drop as U.S. Debt Talks Falter; Gold Jumps to a Record

Copper, oil and corn fell while gold rose to a record as a lack of progress in raising the U.S. debt ceiling boosted concern the world’s largest economy may default, hurting commodities demand and increasing demand for a haven.

Immediate-delivery gold traded at $1,618.25 an ounce by 1:14 p.m. in London after reaching $1,624.07. Copper declined as much as 0.7 percent to $9,608 a metric ton on the London Metal Exchange. Crude for September delivery fell 0.7 percent to $99.20 a barrel on the New York Mercantile Exchange. The U.S. is the biggest crude-oil consumer and ranks second for copper.

House Speaker John Boehner told Republicans there’s no agreement on a plan for raising the ceiling before a default threatened for Aug. 2. The impasse has boosted the chance Standard & Poor’s will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.

“We see classic risk-off mode, and they’ll certainly be selling commodities, gold the exception,” said Paul Deane, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

The collapse July 22 of the quest by President Barack Obama and Boehner for a deal to slice as much as $4 trillion from the long-term debt through overhauls of entitlement programs and the tax code left all sides staring at a crisis with no clear path forward and little time to spare.

Investors boosted gold holdings in exchange-traded products to a record 2,122.6 tons last week as European policy makers met for the second time in a month in a bid to calm Greece’s financial distress and inoculate Spain and Italy from contagion.

Stocks, Dollar

The S&P GSCI Index of 24 commodities dropped as much as 0.9 percent and the MSCI World Index of equities lost as much as 0.4 percent. The U.S. Dollar Index, a six-currency gauge of the dollar’s value, declined as much as 0.3 percent.

A Republican congressional official said Boehner, speaking by telephone to lawmakers, is reporting that discussions are continuing on raising the $14.3 trillion debt ceiling. S&P said in a report that even if Congress raises the limit in time to avert a default, it might lower the U.S. sovereign credit rating to AA+ with a negative outlook if a deal isn’t accompanied by a “credible solution” on the debt burden.

“EU resolve on Greece shifts market focus to stalled U.S. debt-ceiling talks, which gold prices are likely to track,” James Steel, an analyst at HSBC Securities USA Inc., wrote in a note dated July 22. Still, “a sudden agreement on the debt ceiling is always possible, and we would expect gold to react quickly and negatively to any such news,” he wrote.

$2.4 Trillion

Republicans prepared to force action on a shorter-term extension of the limit than Obama has requested, defying a veto threat. The president would veto a measure that doesn’t extend the limit into 2013, White House Chief of Staff Bill Daley said in an interview on NBC’s “Meet the Press” on July 24.

Daley warned that “markets around the world” would react negatively to a short-term measure offering less than $2.4 trillion in borrowing authority.

Corn for December delivery dropped 1.1 percent to $6.78 a bushel on the Chicago Board of Trade. November-delivery soybeans declined 0.7 percent to $13.78 a bushel and wheat for September delivery fell 1.1 percent to $6.8475 a bushel.

“It’s probably going to get solved” in the end, Dominic Schnider, director for wealth management research at UBS AG, said by phone from Singapore. Still, people are becoming so aware of ballooning debt in the developed world there’s a risk that the U.S. sees a rating downgrade, he said.

Clinton Reassures

Secretary of State Hillary Clinton reassured China, the top holder of American Treasuries, that the U.S. will resolve the debt-ceiling impasse and improve its long-term fiscal outlook. People’s Bank of China adviser Xia Bin also said he remains confident an agreement will be reached.

“I am confident that Congress will secure a deal on the debt ceiling and work with President Obama to take steps to improve our long-term fiscal outlook,” Clinton said in Hong Kong today.

Silver for immediate delivery climbed 2 percent to $40.8775 an ounce. Platinum for immediate delivery slipped 0.1 percent to $1,792.50 an ounce.

To contact the reporters on this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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