LONDON—Gold is making fresh highs Wednesday, a move that has become almost a familiar story as the U.S. debt deal fails to assuage concerns and a mood of caution continues to pervade the broader financial sector.
Spot gold is trading up in Europe at $1,673.19 a troy ounce as risk-averse investors give the metal yet another stamp of approval, pushing prices further into uncharted territory.
The gains are in stark contrast to equities, which are sharply lower as the markets fail to shake concerns that a double dip recession could be in the cards for the world's largest economy, the U.S., and lingering worries over debt contagion in Europe.
"Longer-term, gold is likely to be supported by uncertainty in the U.S. fiscal plan—agreeing a sizeable deficit reduction is looking an increasingly remote prospect—and the ongoing debt crisis in the euro zone marked by the widening spreads on peripheral bonds," said Credit Argicole analyst Robin Bhar.
Given that there is little reason for sentiment towards the financial markets to turn positive, gold's ascent looks assured for some time to come. Although U.S. President Barack Obama on Tuesday signed into law a bill raising the nation's debt ceiling, it still faces downgrade risks, growth risks, and the looming prospect of a third round of quantitative easing.
The prospect of a downgrade from the rating agencies to the U.S.'s sovereign-debt rating is also still lingering, despite affirmation of the country's AAA rating by Moody's and Fitch. Standard & Poor's, which has adopted the toughest stance on the U.S. so far, has said it will decide whether or not to downgrade by mid-October.
"The aversion of a U.S. default failed to prick the gold price's bubble," said HSBC's James Steel, adding that this is "evidence that the gold rally is founded on more than just the debt-ceiling issue."
Central banks are also helping to fuel gold's gains. In the past couple of days news came out that the South Korean central bank bought 25 metric tons of gold between June and July, and the Bank of Thailand purchased 17.7 tons in June.
This is bullish for the precious metal, asserting its role as a possible preferred alternative compared with currencies such as the euro or dollar and marking the continuing debasement of fiat currencies, for now at least.
Write to Andrea Hotter at andrea.hotter@dowjones.com
