Gold Rallies to Record as Economic Concerns Spur Investor Demand

Wednesday, 03 Aug 2011 03:35 PM

 

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Gold futures rose to a record $1,675.90 an ounce on signs that the U.S. economy is faltering amid debt woes, boosting demand for the precious metal as an investment haven.

Moody’s Investors Service said the U.S. credit rating may be downgraded and yesterday placed the country on negative outlook after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending. Gold priced in euros also reached a record on concern that slowing growth will hamper efforts by Spain and Italy to trim debt.

“People want gold for safety,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview. “People are running away from currency volatility, economic weakness and political instability. Gold is an international currency, and no government can print any of it.”
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Gold futures for December delivery rose $21.80, or 1.3 percent, to settle at $1,666.30 at 1:42 p.m. on the Comex in New York.

Silver, gold and cattle were the only commodities to post gains among 19 raw materials in the Thomson Reuters/Jefferies CRB Index. The Dow Jones Industrial Average headed for the ninth straight decline, the longest slump since 1978.

This year, gold has climbed 17 percent. The Federal Reserve has kept borrowing costs near zero percent since December 2008 and completed two rounds of so-called quantitative easing to help bolster the economy.
No Vacation

European leaders last month agreed on a second bailout for Greece. Spanish Prime Minister Jose Luis Rodriguez Zapatero returned to Madrid to discuss the escalating debt crisis with ministers, less than a day after departing for a vacation.

“A barely expanding U.S. economy and its implications for the world are now at the forefront of investors’ minds,” Edel Tully, a London-based analyst at UBS AG, said today in a report. “Neither European nor U.S. debt issues have been comprehensively dealt with. Data since last Friday have increased expectations for further quantitative easing” by the Fed, she said.

Yesterday, holdings in exchange-traded products backed by gold rose 20.3 metric tons to a record 2,173.9 tons, data compiled by Bloomberg show.

Silver futures for September delivery rose $1.666, or 4.2 percent, to $41.758 an ounce on the Comex, the biggest gain since July 13. The price has climbed 35 percent this year.

Palladium futures for September delivery fell $31.80, or 3.8 percent, to $795.10 an ounce on the New York Mercantile Exchange. Platinum futures for October delivery slid $8.50, or 0.5 percent, to $1,785 an ounce.

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