Gold climbed to a record after Standard & Poor’s cut the U.S. credit rating, fueling a slump in equities and commodities amid concern that the global economy is slowing.
The S&P 500 Index lost as much as 5.7 percent, while the Thomson Reuters/Jefferies CRB Index of 19 raw materials touched 317.6, the lowest since Dec. 17, after S&P cut the long-term U.S. rating one level to AA+ from AAA on Aug. 5. The agency described the outlook as “negative” and criticized the nation’s political system for failing to adequately address deficit reduction.
“There is heavy buying in gold because of the uncertainty surrounding the U.S. economy,” Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “For gold, the sky is the limit.”
Gold futures for December delivery rose $61.40, or 3.7 percent, to settle at $1,713.20 an ounce at 1:45 p.m. on the Comex in New York, the biggest gain since March 19, 2009. Earlier, the metal surged to $1,721.90, the highest ever. In after-hours trading, it touched $1,723.40.
Prices may jump to $2,000 in the next few weeks, Zeman said.
The precious metal has surged 21 percent in 2011, gaining for an 11th year, as the sovereign-debt crisis and a faltering economy boost demand for the metal as a protection of wealth.
Gold is attractive “in this current macro environment, with high risk and uncertainty surrounding the financial markets,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Gold is pricing in the one-notch downgrade as well as a component of lower global GDP growth.”
Goldman Sachs Group Inc. raised its forecasts for gold futures to $1,730 in six months and $1,860 in a year based on expectations for real U.S. interest rates to stay lower for longer. The previous estimates were $1,635 and $1,730, Goldman said in a report.
Gold may advance as investors seek bullion over U.S. Treasuries as a haven, according to David Lennox, a resource analyst at Fat Prophets.
“People, having rolled into U.S. Treasuries on Thursday evening, suddenly saw that there’s still a concern with Treasuries, and they’ve just gone back to gold,” Lennox said by telephone from Sydney. “It’s just that knee-jerk reaction back to the absolute, probably, safe haven, and that’s gold.”
The U.S. rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, New York-based S&P said Aug. 5.
“The happenings in the past few days highlights the flaws in the U.S. monetary system,” Savneet Singh, the chief executive officer of New-York based Gold Bullion International, said in a telephone interview. “The flight to a safe haven will continue.”
“Participants’ expectations must adjust to the real status of the U.S. rating, which could be the perfect storm for the gold price,” LGT’s Dincer said.
Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.
In India and China, the largest and second-biggest bullion consumers, gold futures climbed to records.
Silver for September delivery rose $1.169, or 3.1 percent, to close at $39.38 an ounce in New York.
Palladium futures for September delivery fell $13.25, or 1.8 percent, to $728.50 an ounce on the New York Mercantile Exchange. Platinum futures for October delivery climbed $4.50, or 0.3 percent, to $1,723.60 an ounce on the Nymex.