Investors seek a safe haven amid China, Greece worries
By Myra P. Saefong and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures climbed Tuesday by as much as $29 an ounce, poised to recoup losses from a two-session decline, as concerns about global debt problems persisted despite last week’s Greek bailout.
Gold for August delivery GC1Q +1.92% rose $27.50, or 1.9%, to trade at $1,510.0 an ounce on the Comex division of the New York Mercantile Exchange.
The contract, which climbed as much as $29.90 to hit an earlier high of $1,512.50, had lost $27.80 over the previous two regular trading sessions. Monday was a holiday.
“The strength in the yellow bullion is primarily on the back of increased safe-haven demand for the commodity after [Standard & Poor’s] warned Greece that it would treat rollover of privately held Greek debt as selective default,” analysts at Icici Bank said in a research note Tuesday.
Credit-rating firm S&P on Monday said a proposal to roll over Greek government debt endorsed by French banks would likely result in a “selective default.” A report in the Financial Times on Tuesday said the European Central Bank would continue to accept Greek government bonds as collateral for loans to banks as long as at least one ratings firm doesn’t deem Greece to be in default.
Over in the U.S., political squabbling over raising the $14.3 trillion debt ceiling continues.
“However, it is likely to be resolved as the massive liabilities incurred (not including unfunded liabilities of over $60 trillion) simply cannot be paid back,” said analysts at GoldCore in a morning note.
“It is therefore likely that more debt monetization (creating money to buy government bonds) will occur, leading to further currency debasement and the risk of stagflation and severe inflation.”
Richard Hastings, a macro strategist at Global Hunter Securities, said he expects to see a short-term move to $1,515 to $1,518 on spot gold, with “some of it the result of renewed efforts to catch some potential upsides from a U.S. budget blunder and some of it on the Indonesia mining strike, which could define a short-term supply risk.”
Gold’s looking good
Adding further support for gold were worries about China, which served to blunt investor appetite for risky assets and boost the appeal of traditional safe havens, analysts said.
Moody’s Investors Service on Tuesday said 8% to 12% of loans extended by Chinese banks could eventually be classed as nonperforming. The report revised Moody’s earlier outlook of 5% to 8% of loans. Read about China’s problem loans.
Other factors supporting gold include expectations that the European Central Bank will increase interest rates later this week and concerns that U.S. data due Friday will show that unemployment has worsened, according to Carlos Sanchez, commodities director at CPM Group.
Even so, Sanchez expects gold prices to move back below $1,500 later this month, and maybe even move closer to $1,480.
“Overall, markets are expanding and the economic condition is improving,” he said. “If this trend continues, it will weigh on gold and silver prices.”
For now, September silver SI1U +4.29% tacked on $1.43, or 4.2%, to $35.14 an ounce.
September palladium PA1U +2.17% was up $16.40 at $773.85 an ounce and October platinum PL1V +1.31% traded at $1,738.50 an ounce, up $21.70.
September copper HG1U +1.09% rose 4 cents to $4.34 a pound.
Myra Saefong is a MarketWatch reporter based in San Francisco.
William L. Watts is a reporter for MarketWatch in Frankfurt. Sara Sjolin in New York contributed to this report.
