Gold rose back towards the previous session's record high near $1,500 an ounce on Tuesday, with risk appetite fragile after Standard & Poor's cut its U.S. outlook and as euro zone sovereign debt concerns simmered.
Prices rose to a record $1,497.20 an ounce on Monday after the S&P news rocked the markets, but slipped back quickly after running into strong resistance at higher levels.
Spot gold was bid at $1,495.66 an ounce at 11:21 SA time, against $1,481.35 late in New York on Monday. U.S. gold futures for June delivery “Most of the trends out there - whether that's worries about the euro, worries about coming inflation, worries about U.S. debt, Chinese buying seeming relatively strong - suggest the price ought to be going higher,” said David Jollie, an analyst at Mitsui Precious Metals.
“It seems there is a reasonable appetite still to buy, but if you look at the pace it has gone up at in the last week, that doesn't seem sustainable,” he added.
“It would be a surprise if we don't get to $1,500 an ounce, but it would also be a surprise if we shot through it.”
The euro steadied against the dollar on Tuesday after the previous day's sell-off, but debt problems in the euro zone kept investors wary of the single currency.
The CBOE Volatility Index, Wall Street's favourite barometer of investor anxiety known as the VIX , jumped as much as 24.5 percent on Monday after S&P warned about the towering US budget deficit.
Risky assets were hit by a double-whammy on Monday after fears mounted that Greece will have to restructure its debt, maybe as early as this summer, and S&P threatened to cut the United States' AAA credit rating.
FISCAL CHALLENGES
“The agency's comment that 'there is at least a one in three likelihood that it could lower its long-term rating on the US within two years' was interpreted by the gold community as reflecting the seriousness of U.S. fiscal challenges and hence provided a catalyst for higher prices,” said UBS in a note.
“That the fiscal spotlight is now on the U.S. is gold-positive,” it added.
Oil prices continued to correct, however, with U.S. crude futures falling $1 a barrel in early European trade. Strength in crude after unrest across the Middle East and North Africa earlier this year was a key factor driving gains in gold.
Rising crude prices tend to lift gold, which is often seen as a hedge against oil-led inflation. Signs that inflation is becoming a major issue in emerging markets, particularly China, has been identified as another support to the precious metal.
Silver also held near the previous session's 31-year high of $43.51 an ounce, last bid at $43.24 an ounce against $43.32 on Monday.
Silver has outperformed gold this year, up 40 percent so far against gold's 5 percent rise. The gold:silver ratio slipped to a 28-year low below 35 on Monday. - Reuters
