Gold rallied to its ninth record high this year on Tuesday, as growing fears about the spread of the European debt crisis and the increasingly gloomy outlook for the US economy fed a broad investor push into perceived safe-haven assets.
US lawmakers averted an unprecedented default on the country's debt on Monday but the likelihood of the United States losing its top-notch credit rating as a result of its ballooning deficits boosted the likes of gold, the Swiss franc and German government bonds.
Stocks and bonds of the euro zone's more fragile members came under fire on Tuesday, pushing yields on Spanish and Italian debt to 14-year highs, while Italian authorities held emergency talks and Spain's economy ministry kept in permanent contact with its European Union counterparts to try to stem the crisis.
Spot gold was last up 1.3% on the day at USD 1,638.79 an ounce by 1250 GMT, having touched an all-time high of USD 1,640.39 earlier in the day, marking its ninth record this year ahead of the vote in the US Senate later to enshrine the last-minute deal on raising the country's debt limit into law.
"There's a market saying 'buy the fear, sell the greed.' Now obviously, people have been buying the fear, certainly for metals and therefore, later today, and early tomorrow in Asia, do you start to sell the greed? I don't know," said Credit Agricole analyst Robin Bhar.
"The US has averted default, but not averted downgrade, so that's the driving thought. I would have thought gold would pause for breath and move lower, I thought USD 1,650 would be the target two or three months down the road," he said, adding: "There's no stopping it, and there's no point standing in the way of it. You just don't know where the top is going to be."
Gold has rallied by some 15%so far this year, hitting record highs in dollars, euros, sterling, rand and Canadian dollars, indicating investors' distrust of volatile currencies, while central banks have thus far remained buyers of bullion, with South Korea the latest addition to that list after its first purchase in over 10 years.
South Korea's central bank said on Tuesday it bought 25 tonnes of gold between June and July to diversify its foreign reserves despite high prices, marking its first purchase in more than a decade and taking its total gold holdings to 39.4 tonnes.
"This news reiterates the fundamental view that most investors, asset managers, and even central banks hold true -- that gold remains the quintessential currency hedge, a stabilizing asset for portfolios, and a safe haven in uncertain economic times," said David Meger, director of metals trading at Vision Financial Markets, a futures broker based in Chicago.
No default
The United States is poised to step back from the brink of economic disaster on Tuesday as a bitterly fought deal to cut the budget deficit is expected to clear the Senate and President Barack Obama's desk.
Just hours before the Treasury's authority to borrow funds runs out -- risking a damaging US debt default -- the Senate was expected to approve the deal to cut the country's bulging deficit and lift the USD 14.3 trillion debt ceiling enough to last beyond the November 2012 elections.
Risk appetite might return now there is agreement on the country's borrowing limit, but the gloomy economic outlook in the world's largest economy combined with an ongoing euro zone debt crisis could depress such sentiment, traders and analysts said.
"Gold should be lower after the US debt ceiling deal is reached, but it remains firm as people don't trust the dollar and would still like to put their money in gold," said Peter Fung, head of dealing at Wing Fung Precious Metals based in Hong Kong.
Gold priced in euros rose by 1.7% on the day to hit a record 1,157.51 euros an ounce, while sterling-priced gold also hit a record peak at 1,009.05 pounds an ounce and gold in Canadian dollars rose more than 1.5% to a record CAD 1,575.34 an ounce.
In other precious metals, silver was up 1.1% at USD 39.68 an ounce, while the platinum group metals were modestly higher, with platinum up 0.1% at USD 1,790.24 an ounce and palladium up 0.1% at USD 826.22 an ounce.
