Precious metal may advance as investors seek gold over US Treasuries as safe haven
Gold climbed above $1,700 an ounce for the first time after
Standard & Poor’s cut the top US credit rating, fueling a slump in equities
and the dollar amid concern that the global economy is slowing.
Gold futures for December delivery jumped 3.1 percent to a
record $1,702.70 an ounce on the Comex in New York and traded at $1,701.90 at
2:07 p.m. in Melbourne. Silver futures climbed as much as 5.7 percent. Spot
gold soared 2.2 percent to $1,700.22 an ounce, also a record.
Futures have surged 20 percent in 2011, gaining for an 11th
year, as the sovereign debt crisis and a faltering economy boost haven demand.
While George Soros sold most of his gold in the first quarter, John Paulson,
who made $15bn betting against subprime mortgages, is still the biggest
investor in the largest exchange-traded fund backed by bullion. Goldman Sachs
Group Inc. raised its price forecasts in a report released on Monday.
“There’s just a pessimism or nervousness that’s associated
with economies and currencies of these major nations,” Gavin Wendt, director at
Sydney-based Mine Life Pty Ltd, said by phone. “At a time when investors are
nervous of currencies, they’re nervous of equities, they’re nervous of
everything, the only place for them to park their money is gold.”
S&P cut the long-term rating one level to AA+ from AAA
on August 5 while keeping the outlook at “negative,” criticizing the nation’s
political system for failing to adequately address deficit reduction. Equities
sank today, extending the market’s slump, as the dollar and oil slid.
About $5.4 trillion in global equity value has been erased
since July 26, according to Bloomberg data, after Europe’s debt crisis
worsened, reports on US manufacturing and consumer spending showed the world’s
largest economy was slowing and a political impasse over the budget deficit
brought the American government to the brink of default.
The S&P 500 slumped 7.2 percent last week for its worst
plunge since November 2008, during the final four months of the bear market that
wiped out 57 percent of the index. Still, stronger-than-forecast government
data on employment growth sparked a 1.5 percent rebound in the index on Aug. 5
before the rally faded as speculation of the reduction in the US rating swirled
through the market.
“It’s not just one of the safe havens, it’s the safe haven,”
Wendt said, referring to gold. “Typically, in times of stress it would be the US
dollar and probably gold but with these circumstances, it’s really putting a
line through the US dollar.”
Goldman Sachs Group Inc raised its futures forecasts to
$1,645 an ounce, $1,730 an ounce and $1,860 an ounce on a three-month,
six-month and 12-month horizon as it expects real US interest rates to stay
lower for longer. The previous estimates were $1,565, $1,635 and $1,730 an
ounce, it said in a report.
“We continue to recommend long-trading positions in gold,”
the bank said.
The dollar dropped to a record low versus the Swiss franc
and slid for a second day against the yen. The dollar traded at 76 centimes at
2:12 p.m. in Melbourne from 76.74 in New York on Aug. 5. The US currency
weakened to 78.02 yen from 78.40.
Gold may advance as investors seek gold over US Treasuries
as a haven, according to David Lennox, a resource analyst at Fat Prophets.
“People, having rolled into US Treasuries on Thursday
evening, suddenly saw that there’s still a concern with Treasuries and they’ve
just gone back to gold,” Lennox said by phone from Sydney. “It’s just that
kneejerk reaction back to the absolute, probably, safe haven and that’s gold.”
Yields on 10-year notes dropped 24 basis points last week or
0.24 percentage point, to 2.56 percent after falling as low as 2.33 percent on
August 5, according to Bloomberg Bond Trader prices amid signs of stalled
economic growth and a widening sovereign-debt crisis.
The US rating may be cut to AA within two years if spending
reductions are lower than agreed to, interest rates rise or “new fiscal
pressures” result in higher general government debt, New York-based S&P
said August 5.
Lawmakers agreed on August 2 to raise the nation’s $14.3
trillion debt ceiling and put in place a plan to enforce $2.4 trillion in
spending reductions over the next 10 years, less than the $4 trillion S&P
had said it preferred.
Silver for September delivery surged as much as 5.7 percent
to $40.40 an ounce on the Comex and traded at $40.235. The metal for immediate
delivery rose 4.8 percent to $40.2025.
Palladium for September delivery dropped 2 percent to
$727.25 an ounce after falling as much as 3.9 percent in New York. Platinum for
October delivery gained 0.2 percent to $1,723.2 an ounce.