Gold climbed to a record in New York and London as U.S. lawmakers failed to reach an agreement on raising the federal debt limit, boosting demand for the metal as a protection of wealth.
U.S. House Speaker John Boehner plans to press ahead with a two-step debt-limit extension that President Barack Obama has threatened to veto, fueling concern the nation is lurching toward a default as early as Aug. 2 and jeopardizing its AAA credit rating. Greece’s rating was cut three notches by Moody’s Investors Service. Europe’s debt woes helped bullion reach all- time highs in euros and pounds last week.
“Debt problems have again been driving the markets,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “The 50-50 view of a default by the U.S. seems likely to draw more investment demand towards gold as investors lose faith in paper money and seek more tangible assets.”
Gold for August delivery gained as much as $22.80, or 1.4 percent, to $1,624.30 an ounce and traded at $1,616.90 by 7:59 a.m. on the Comex in New York. Immediate-delivery gold was 1 percent higher at $1,616.98 in London after reaching a record $1,624.07.
Bullion is up 14 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index of equities gained 4.4 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities rose 10 percent and Treasuries returned 3.3 percent, according to a Bank of America Merrill Lynch index.
U.S. Debt Ceiling
Republicans and Democrats prepared dueling plans for raising the U.S. debt ceiling, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt. Mohamed A. El-Erian, whose Pacific Investment Management Co. runs the world’s biggest bond fund, said the U.S. may lose its AAA debt rating even if lawmakers avoid a default.
Secretary of State Hillary Clinton today reassured China, the top holder of American debt, the U.S. will resolve the impasse.
“They didn’t reach an agreement on the U.S. debt issue and this uncertainty is getting fed into gold,” said Dominic Schnider, director for wealth management research at UBS AG. While it’s probably going to get solved at the last minute, people are becoming so aware of the ballooning debt in the developed world, there’s a risk that the U.S. will have a rating downgrade, he said. Gold may surge to $1,800 toward the end of the year, Schnider said.
Debt-Laden Greece
Moody’s said today the European Union’s rescue for debt- laden Greece will cause “substantial” losses for investors, amounting to a default. Euro-area leaders have also erected a firewall around Spain and Italy to end the 21-month sovereign bond crisis.
Dennis Gartman, the economist and editor who correctly forecast 2008’s commodities slump, said today in his Suffolk, Virginia-based Gartman Letter that he’ll buy more gold priced in euros and pounds. He sold some of his gold holdings earlier this month.
Investors boosted gold holdings in exchange-traded products to a record 2,122.6 metric tons on July 20. Assets were 2,120.3 tons on July 22, data compiled by Bloomberg show. Hedge funds and other money managers lifted their net-long gold positions by 7.3 percent to 238,319 futures and options contracts in the week to July 19, data from the U.S. Commodity Futures Trading Commission showed.
Silver for September delivery in New York gained as much as 2.5 percent to $41.105 an ounce, the highest price since May 4, and was last at $40.74. Palladium for September delivery was unchanged at $806.40 an ounce. Platinum for October delivery was down 0.1 percent at $1,796.50 an ounce.
By Nicholas Larkin and Glenys Sim – Jul 25, 2011 Bloomberg