Bloomberg News

Gold Rises to Record on ‘Witch’s Brew’ of Debt, Currency Woes

July 14, 2011

July 14 (Bloomberg) -- Gold futures rose to a record for the second straight day on speculation that debt woes in the U.S. and Europe will escalate, boosting the appeal of the precious metal as a haven. Silver climbed to a nine-week high.

Moody’s Investors Service said the U.S. may lose the Aaa credit rating held since 1917. Fitch Ratings said that a default in Greece is a “real possibility.” The dollar headed for the third consecutive drop against a basket of currencies.

“Gold is going higher on a witch’s brew of debt crisis, further stimulus, a weaker dollar and a loss of confidence in paper currencies and government,” Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview.

On the Comex in New York, gold futures for August delivery rose $3.80, or 0.2 percent, to settle at $1,589.30 an ounce at 1:43 p.m. Earlier, the price reached a record $1,594.90.

The metal pared gains after Federal Reserve Chairman Ben S. Bernanke told Congress today that the central bank is not prepared “at this point” to offer more stimulus to the economy.

The Fed is prepared to take additional action if the economy appears to be in danger of stalling, Bernanke said yesterday. He said a failure by Congress to raise the nation’s $14.3 trillion debt limit would lead to a “major crisis” and throw “shock waves” through the financial system.

QE3

“Gold took a bit of a slide on Bernanke’s attempt to clarify his statements” on a third round of so-called quantitative easing, Zeman said. “It’s not an option that’s by any means off the table. If we don’t see improvement in the economy by the third quarter, then we’re still going to see QE3.”

The U.S. was put on a credit-rating review for the first time since 1996 on concern that the debt threshold will not be raised in time to prevent a missed payment of interest or principal, Moody’s said.

President Barack Obama and congressional leaders have failed to reach a compromise on reducing deficits and raising the debt ceiling. The government will exceed its borrowing authority on Aug. 2, the Treasury Department has said.

“If you don’t have a miraculous solution to all the world’s problems out there, then gold has to go higher,” Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview. “There’s massive safe- haven buying into gold.”

$2,000 Forecast

The metal may surge to $2,000 if the Fed starts a third round of U.S. debt purchases, Michael Pento, a senior economist at Euro Pacific Capital Inc., said yesterday in a telephone interview. “People will be forced into buying gold.”

Silver futures for September delivery rose 54.3 cents, or 1.4 percent, to $38.694 an ounce. Earlier, the most-active contract reached $39.395, the highest since May 11. On April 25, the metal surged to $49.845, a 31-year peak.

This year, the price will climb to $62, topping the record $50.35, McGhee of Integrated Brokerage said. “Silver is still cheap compared with gold,” he said.

Palladium futures for September delivery fell 65 cents to $783.35 on the New York Mercantile Exchange. Platinum futures for October delivery rose $7.30, or 0.4 percent, to $1,774.30 an ounce.

--Editor: Patrick McKiernan, Millie Munshi

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.


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