Gold prices hit record highs for a second day on Thursday after hints of further policy easing from the Federal Reserve and a Moody’s warning the United States may lose its top-notch credit rating hurt the dollar and sparked buying of safe-haven assets. The precious metal was also strengthened by concerns over euro zone debt levels, which have intensified over delays to policymakers’ plans to discuss the crisis and after Greece’s credit rating was downgraded by Fitch late on Wednesday.
Spot gold touched a record $1,594.16, and was up 0.6 per cent at $1,590.66 an ounce at 1120 GMT. U.S. gold futures GCv1 for August delivery were up $5.60 an ounce at $1,591.30. The precious metal has risen more than 6 per cent so far this month and is on track for its ninth straight daily rise, its longest run of gains since October 2006.
“A lot of chatter has been going through about Greece, Portugal, now Italy and Spain, and the gold market has been pricing this in on a continuous basis,” said Bayram Dincer, an analyst at LGT Capital Management. “In the US some interpretation could be made that the likelihood is increasing of further quantitative easing,” he added. “Another problem is the debt ceiling and the US being put under review. Aggregating all these multiple driving factors for gold, it’s very positive.” A wave of risk aversion swept the financial markets after Moody’s Investors Service said on Wednesday the United States may lose its top-notch credit rating in the next few weeks if lawmakers fail to increase the country’s legal borrowing limit and the government misses debt payments.
Bund futures rose as demand for AAA-rated German debt increased after the Moody’s report, while on the foreign exchange markets, the Swiss franc, which is often seen as a safe-haven currency, hit record highs against the dollar and the euro. The dollar came under pressure, falling 0.2 per cent against a basket of six other currencies in Europe. A weaker dollar typically benefits gold. Stock markets fell in Europe. “The climate driving gold higher is similar to that of Q2 2010 when gold also jumped to then record highs, buoyed by the emergence of the Greek sovereign crisis and US quantitative easing,” said HSBC analyst James Steel in a note. “Gold is reacting to a similarly bullish cocktail of factors except that as policymakers appear to have more limited options now, conditions are more gold-bullish now than in 2010.” Gold rallied in other currencies as well as the dollar, hitting record highs in Canadian dollar and South African rand terms at C$1,528.91 an ounce and 10,947 rand an ounce respectively.
FRESH ROUND OF EASING:
Federal Reserve Chairman Ben Bernanke said on Wednesday the Fed is ready to ease monetary policy further if economic growth and inflation slow much more. Quantitative easing – which basically translates to printing money – was a major support to gold prices last year, as it undermined confidence in the dollar and fanned expectations that inflation would rise. “Clearly the Fed felt the need to open the door to QE3 given the deterioration of recent economic prints, particularly last week’s June payrolls data,” said UBS analyst Edel Tully in a note.
“That the Fed now sounds more open to the prospect of further easing sparked widespread pricing-in of QE3, not only in gold, but across multiple asset classes.” Among other precious metals, silver rose 2.7 per cent to $39.28 an ounce, building on the previous session’s 5.6 per cent rise, its best one-day performance since May 9. The gold:silver ratio — the number of silver ounces needed to buy an ounce of gold — eased to its lowest since late May at 40.6. “In the good times, when commodities are performing and gold is performing, silver is a star performer,” said Commerzbank analyst Eugen Weinberg. “But should the economy get into trouble and industrial metals demand abate a bit, gold will outshine it.” Spot platinum rose 1 per cent to $1,768.24 an ounce, while spot palladium rose 1.3 per cent to $782.22 an ounce.
