Gold surged to a record as U.S. lawmakers failed at the weekend to reach an agreement on raising the federal debt limit, boosting haven demand on concern that the government of world’s largest economy may default. Immediate-delivery gold gained for a second straight day, climbing as much as 1.4 percent to $1,624.07 an ounce. Spot gold, which has rallied 13 percent this year, was at $1,611.45 at 9:59 a.m. in Singapore. Gold for August delivery in New York climbed to $1,624.30, the highest ever. House Speaker John Boehner plans to press ahead with a shorter-term increase in the debt limit than President Barack Obama has requested, he said yesterday, signaling stalemate in the talks ahead of an Aug. 2 deadline. Mohamed A. El-Erian, chief executive officer and co-chief investment officer at world’s biggest bond fund, Pacific Investment Management Co., called the country’s AAA rating “extremely vulnerable.” “They didn’t reach an agreement on the U.S. debt issue and this uncertainty is getting fed into gold,” said Dominic Schnider, director for wealth management research at UBS AG. The price may surge to $1,800 toward the end of the year, he said. Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have said they will cut the U.S.’s top-level credit ranking should failure to raise the debt limit lead to a default. Treasury Secretary Timothy F. Geithner said yesterday that the House of Representatives must start deliberations on a debt- limit agreement by today to meet the deadline. Veto Threat (For a related story to the U.S. debt talks, click here. To read a story on the performance today of currency and equity markets, click here.) Boehner, an Ohio Republican, is considering a plan that would provide an immediate, stopgap borrowing boost of about $1 trillion. Obama, who’s seeking a $2.4 trillion debt-ceiling increase all at once, would veto such a measure, White House Chief of Staff Bill Daley said on NBC’s “Meet the Press.” “It’s probably going to get solved at the really last end but it doesn’t really matter,” Schnider said. People are now becoming so aware of the ballooning debt in the developed world, there’s a risk that the U.S. sees a rating downgrade, he said. Investors boosted holdings of the metal in exchange-traded products to a record 2,122.6 metric tons on July 20 on concern that the fiscal crisis in Europe that began in Greece may be spreading to Spain and Italy. Holdings, which were 2,120.332 tons on July 22, have risen 1.1 percent this year. ‘Political Compromise’ In the U.S. “in most likelihood, a last-minute political compromise will avoid a default but will leave the AAA rating extremely vulnerable,” El-Erian wrote in an e-mail. “The debt- ceiling debacle unambiguously translates into an intensification of the already-strong headwinds facing U.S. growth and employment creation.” Hedge-fund managers and other large speculators increased net-long positions in New York gold futures for a second week, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets on gains, beat short positions by 219,297 contracts in the week to July 19. Sixteen of 32 traders, investors and analysts surveyed by Bloomberg, or 50 percent, said bullion will rise this week. Nine predicted lower prices and seven were neutral. “I have not sold any gold, I have bought more gold,” investor Jim Rogers said in a Bloomberg podcast. “If gold goes down I’ll buy more. The price of gold is going to go much, much higher over the next decade.” Cash silver advanced as much as 1.3 percent to $40.6012 an ounce, the highest level since July 19. Platinum gained 0.2 percent to $1,798 an ounce, while palladium fell 0.2 percent to $805.50 an ounce. To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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