Gold hits record high on U.S., Europe debt worries

Reuters News
Posted: Jul 17, 2011 10:43 PM
Gold hits record high on U.S., Europe debt worries

By Rujun Shen

SINGAPORE (Reuters) - Spot gold touched a record high on Monday, reflecting persistent worries about the euro zone debt crisis and a growing threat of a U.S. government default.

Spot gold rose to an all-time peak of $1,598.41 and U.S. gold hit a record high of $1,599.20.

The appetite for bullion as a safe storage of value increased, as investors feared that the stalemate in negotiations over U.S. deficit plan could lead to a default, which might wreak havoc in global markets and send the world's top economy back to recession.

Adding to worries about the economic growth, U.S. consumer confidence hit a near 2-1/2-year low in early July and manufacturing output stalled in June.

"The political uncertainties in the United States and Europe will be an ongoing theme and safe-haven demand will continue," said Natalie Robertson, a commodities analyst at ANZ.

Robertson expected gold to reach $1,650 in the short term on macro concerns and chart strength, but added that volatility may increase as the deadline for the U.S. debt ceiling talks on August 2 draws close.

Gold's early strength came under pressure as the dollar firmed up against a basket of currencies.

Spot gold pared early gains and was steady at $1,593.50, after rallying for a 10th straight session on Friday, matching a similar winning run in 1970.

U.S. gold edged up 0.2 percent to $1,592.50.

Results of stress tests of 90 banks across the European Union were better than expected, but failed to impress investors who continue to worry about the possibility of contagion of debt crisis in the region.

"This move in gold still has momentum, as Europe is burning to the ground," said a U.S.-based trader.

Technical analysis also pointed to a bullish picture. Spot gold has resumed its medium-term uptrend and would rise toward $1,613, said Reuters market analyst Wang Tao.

Indicating increased appetite in bullion, speculators sharply raised their bullish bets in U.S. gold futures and options last week as prices rallied, data from the U.S. Commodity Futures Trading Commission showed.

Holdings at the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose nearly 1 percent to 1,236.013 tonnes, highest in since late January.

"Gold prices have hit fresh highs across several currencies on macro unease, the dollar weakening and the escalation of European sovereign debt uncertainty creating a favourable backdrop," said Barclays Capital in a research note.

"We expect prices to test new highs despite the seasonal weakness in demand."

Spot silver hit $39.75, its highest since May 4. It was trading at $39.61, up 0.9 percent.

U.S. silver gained 1.5 percent to $39.64.

The gold-silver ratio, used to measure how many ounces of silver can buy an ounce of gold, declined to 40.20, its lowest since end of May.

Precious metals prices 0212 GMT

Metal Last Change Pct chg YTD pct chg Volume

Spot Gold 1593.50 0.20 +0.01 12.26

Spot Silver 39.61 0.34 +0.87 28.35

Spot Platinum 1753.00 5.00 +0.29 -0.82

Spot Palladium 779.75 8.75 +1.13 -2.47

TOCOM Gold 4048.00 17.00 +0.42 8.55 17153

TOCOM Platinum 4508.00 11.00 +0.24 -4.00 1733

TOCOM Silver 98.30 1.20 +1.24 21.36 126

TOCOM Palladium 1993.00 13.00 +0.66 -4.96 78

COMEX GOLD AUG1 1592.50 2.40 +0.15 12.04 9455

COMEX SILVER SEP1 39.64 0.57 +1.46 28.12 6361

Euro/Dollar 1.4064

Dollar/Yen 79.01

TOCOM prices in yen per gram. Spot prices in $ per ounce.

COMEX gold and silver contracts show the most active months

(Editing by Himani Sarkar)