SYDNEY(MarketWatch) — Gold futures pulled back in electronic trading Friday, taking a reprieve from their record run-up in prices, but they were supported by U.S. debt concerns after a fresh ratings warning from Standard and Poor’s.
Gold for August delivery GC1Q -0.57% lost $7.40 or 0.5%, to $1,581.70 an ounce on the Comex division of the New York Mercantile Exchange during Asian trading hours.
Adjusting for inflation, gold has hit a string of record highs this week, as the possibility of more stimulus being pumped into the U.S. economy and global debt worries supported buying.
Martin Hennecke, associate director at Tyche Group in Hong Kong, said the unraveling debt crises in the U.S. and Europe are driving safe-haven demand for precious metals.
“The crisis is centered in sovereign currencies and bonds, and therefore people see commodities as a safe haven, because they are inflation-proof,” Hennecke said.
“The sovereign-debt crisis is only starting to get underway. The major countries, Germany, France, the U.K. and US haven’t even been hit yet,” he said. “There is major upside for gold yet to come.”
Rising Asian — particularly Chinese — demand, combined with supply difficulties are adding upside to gold, Hennecke said.
Late Thursday, new urgency was injected into the ongoing U.S. debt negotiations, when S&P said it put U.S. sovereign ratings on formal credit watch. Read more about U.S. debt ceiling negotiations & the S&P warning.
The warning came one day after Moody’s Investors Service put the U.S. government’s Aaa bond rating on review for possible downgrade because it fears “a small but rising risk” of a short-lived default.
“Even if they raise the debt ceiling, and there’s no technical default, it doesn’t matter. The debt will just continue to grow, the issue is not about the debt ceiling at all, it’s about unsustainable deficit,” Hennecke said.
The broader metals complex diverged in Asian trading Friday, with silver leading the declines, after a rallying earlier in the week.
The September contract SI1U -1.92% lost 45 cents, or 1.2%, to $38.24 an ounce.
September copper HG1U -0.14% added one penny, or 0.3%, to $4.39 a pound.
Platinum for October delivery PL1U +4.37% lost $15.80, or 0.9%, to $1,758.50, while the September contract for palladium PA1U -1.19% shed $9.30 cents, or 1.2%, to $774.05 an ounce.
Virginia Harrison is a MarketWatch reporter based in Sydney.
