Gold rallies past $1,600 amid economic fears
The metal hits record highs as investors worry about the persistent debt crisis in Europe and the potential for a default in the US.
By TheStreet Staff on Mon, Jul 18, 2011 10:01 AM Gold prices reached record highs Monday amid growing worries about Europe’s debt crisis and deficit negotiations among U.S. lawmakers.
Gold (-GC) for August delivery was last gaining $17 to $1,607.10 an ounce at the Comex division of the New York Mercantile Exchange. The metal traded for as high as $1,607.90 and as low as $1,591.40.
The spot gold price was climbing by $11.40, according to Kitco’s gold index. Silver (-SI) prices were gaining $1.51 to $40.58 an ounce.
The ongoing deficit debate between Republicans and Democrats remains volatile as the parties continue to clash over tax and entitlement programs. In the worst-case scenario, analysts say, a failure to raise the debt ceiling would lead to a government bond default that could hobble the U.S. financial system and hurt the global economy.
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Ratings agency Moody’s (MCO) already said it may downgrade U.S. credit. Most economists expect the U.S. government to resolve the debt issue before the Aug. 2 default deadline.
European contagion fears continued to weigh on global investors, with the FTSE in London declining 1.1% and the DAX in Frankfurt losing 1.2%.
Results from European bank stress tests last week failed to inspire confidence. Some investors feel the tests failed to adequately account for the massive exposure European banks have to sovereign debt as well as to trillions of dollars in residential mortgages and business loans.
The euro was losing 0.8% against the US dollar, which was gaining 0.6% against a basket of six currencies. Many investors buy gold as a hedge against inflation in paper currencies.
“Currencies like the Norwegian krone, Singapore dollar, Australian dollar and Swiss franc are likely to outperform the debt-saturated U.S. dollar, British pound and euro,” according to a research report by GoldCore.
The report added that gold and silver would push toward their inflation-adjusted highs. Gold reached a “real” high of $2,400 per ounce in 1980. That year, silver reached its real high of $140 per ounce.
Chao Deng-The Street, July 18, 2011