BLBG: Gold Tops $1,700 for First Time on U.S. Rating
Gold climbed to more than $1,700 an ounce for the first time after Standard & Poor’s cut the top U.S. credit rating, fueling a slump in equities and the dollar amid concern that the global economy is slowing.
Prices have surged 20 percent in 2011, gaining for an 11th year, as the sovereign debt crisis and a faltering economy boost demand for the metal as a protection of wealth. John Paulson, who made $15 billion betting against subprime mortgages, is still the biggest investor in the largest exchange-traded fund backed by bullion. Goldman Sachs Group Inc. (GS) raised its price forecasts in a report released today.
“In this current macro environment with high risk and uncertainty surrounding the financial markets, gold has boded very well,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Gold is pricing in the one-notch downgrade as well as a component of lower global GDP growth.”
Gold for immediate delivery rose $42.47, or 2.6 percent, to $1,706.28 an ounce by 12:15 p.m. in London, after earlier today climbing 3.1 percent, the most since Nov. 4, to an all-time high of $1,715.75. Futures for December delivery jumped as much as 4 percent to a record $1,718.20 an ounce on the Comex in New York, and lastly traded at $1,712.90.
Silver for immediate delivery rose 3.9 percent to $39.8350 an ounce in London.
S&P cut the U.S.’s long-term rating one level to AA+ from AAA on Aug. 5, describing the outlook as “negative,” and criticizing the nation’s political system for failing adequately to address deficit reduction. Equities sank today, extending the market’s rout, as the dollar and oil slid.
Parking Money
“There’s just a pessimism or nervousness that’s associated with economies and currencies of these major nations,” Gavin Wendt, director at Sydney-based Mine Life Pty Ltd., said by phone. “At a time when investors are nervous of currencies, they’re nervous of equities, they’re nervous of everything, the only place for them to park their money is gold.”
About $5.4 trillion in global equity value has been erased since July 26, according to Bloomberg data, after Europe’s debt crisis worsened, reports on U.S. manufacturing and consumer spending showed the world’s largest economy was slowing and a political impasse over the budget deficit brought the American government to the brink of default. The S&P 500 slumped 7.2 percent last week for its worst plunge since November 2008.
Bullion is “not just one of the safe havens, it’s the safe haven,” Wendt said. “Typically, in times of stress it would be the U.S. dollar and probably gold but with these circumstances, it’s really putting a line through the U.S. dollar.”
The dollar dropped to a record low versus the Swiss franc and slid for a second day against the yen.
Goldman Forecasts
Goldman Sachs raised its forecasts for gold futures to $1,645 an ounce, $1,730 and $1,860 on a three-month, six-month and 12-month horizon as it expects real U.S. interest rates to stay lower for longer. The previous estimates were $1,565, $1,635 and $1,730 an ounce, it said in a report.
Gold may advance as investors seek bullion over U.S. Treasuries as a haven, according to David Lennox, a resource analyst at Fat Prophets.
“People, having rolled into U.S. Treasuries on Thursday evening, suddenly saw that there’s still a concern with Treasuries and they’ve just gone back to gold,” Lennox said by phone from Sydney. “It’s just that kneejerk reaction back to the absolute, probably, safe haven and that’s gold.”
The U.S. rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, New York-based S&P said Aug. 5.
U.S. Ratings
“Participants’ expectations must adjust to the real status of the U.S. rating, which could be the perfect storm for the gold price,” LGT’s Dincer said.
Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.
In India and China, the largest and second-biggest bullion consumers, gold futures climbed to records.
Futures for October rose as much as 2.2 percent to an all- time high of 25,180 rupees per 10 grams on the Multi Commodity Exchange of India Ltd. Gold in Shanghai climbed as much as 3.7 percent to 356.20 yuan a gram, the highest level ever.
Holdings in exchange-traded products backed by gold climbed 2.94 metric tons to a record 2,185.5 tons as of Aug. 5, data compiled by Bloomberg show, gaining for the 10th session.
Palladium for immediate delivery dropped 0.6 percent to $739 an ounce after falling as much as 3.8 percent. Platinum gained $11.50, or 0.7 percent, to $1,729.75 an ounce.
To contact the reporters on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net; Madelene Pearson in Mumbai at mpearson1@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
