Gold Rebounded After Moody’s Says U.S. May Face Downgrade

Gold and silver futures rebounded after Moody’s Investors Service said U.S. policy makers must address debt woes to avoid a credit-rating downgrade this year, boosting the appeal of the metals as a haven.

“More needs to be done on the policy front to address this rising debt ratio,” said Steven Hess, a senior vice president at New York-based Moody’s. The ratio of debt to gross domestic product will increase in the long term, according to the Congressional Budget Office. Earlier, gold fell as much as 2.1 percent, while silver plunged 9.4 percent.

“The Moody’s headline seems to have brought buyers to precious metals,” Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “There was also massive short-covering after prices started rising” as traders unwound bets on a slump, he said.

Gold futures for June delivery gained 1.4 percent to settle at $1,384.10 an ounce at 1:43 p.m. on the Comex in New York. Earlier, the price touched $1,336.30, the lowest for a most-active contract since April 18. The metal dropped in the previous session sessions, the longest slump in four years.

On Aug. 8, 2011, gold rose 3.7 percent to a record at the time after Standard & Poor’s cut the U.S. credit rating that month.

Holdings in exchange-trade products backed by the precious metal surged by $1.7 billion in 10 minutes today as futures rallied. Assets at 2,198.3 metric tons on May 17 were the lowest since July 2011.

Mideast Tensions

Escalating tensions in the Middle East, a drop by the dollar against major currencies and “barging hunting” boosted gold and silver, David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview.

Silver futures for July delivery advanced 1 percent to close at $22.582 an ounce on the Comex. Earlier, the price touched $20.25, the lowest since Sept. 14, 2010. Trading was 70 percent higher than the 100-day average, according to data compiled by Bloomberg.

Electronic trading in the July contract, the most-active, was halted four times in 20-second increments between 5:07 p.m. and 5:10 p.m. Chicago time yesterday after prices “sold off sharply,” Damon Leavell, a spokesman for CME Group Inc.’s Comex, said today in an e-mail.

This year, silver has slumped 25 percent and gold dropped 17 percent this year as some investors have lost faith in precious metals as a store of value amid improving economic growth, low inflation and the rally in equities.

On the New York Mercantile Exchange, palladium futures for June delivery rose 1.4 percent to $750.75 an ounce. Earlier, the price reached $754.95, the highest since April 3. Trading more than doubled compared with the 100-day average.

Platinum futures for July delivery advanced 1.1 percent to $1,484.60 an ounce.

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