LONDON:Gold prices rose to record highs above $1,625 on Wednesday, with silver and palladium also rallying, as concerns over the prospect of a US default prompted investors to buy precious metals as a haven from risk.
Bitterly divided Republicans and Democrats are are scrambling to find common ground with less than a week before the government hits its borrowing limit, with chances of a quick resolution receding after a vote on a deficit plan by Republican SpeakerJohn Boehner was pushed back to Thursday from Wednesday.
Failure to lift the debt ceiling by August 2 could trigger a debt default, while a budget plan that flinches from hefty cuts in the deficit could result in a downgrade of the country's top-notch credit rating, analysts said.
Spot gold hit a fresh record high of $1,628 an ounce and was up 0.3 per cent at $1,623.36 by 1411 GMT.
"There is not only uncertainty about a possible downgrade (for the US) but a possible default if the debt ceiling is not increased. That is reflected in gold prices and people are positioning themselves for a worst-case scenario," said Georgette Boele, head of forex and commodities research atABN Amro.
Bullion has gained more than 8 per cent in July and has hit six all-time highs in the past ten sessions, as US lawmakers were locked in a standoff over dueling debt plans that offered little prospect for compromise.
The dollar sank to a three-month low against a basket of currencies, while stock markets declined in Europe and oil prices fell.
US Treasuries, whose safe-haven status would be undermined by a downgrade, have held up relatively well due to the large size of the market and widespread holdings, but the gap between higher-yielding Treasuries and equivalent German debt expanded to its widest since February.
"If there isn't a last minute compromise (in the US debt talks) then the situation will get more and more critical. Gold is one of the alternatives toUS treasuries and therefore there is further upside potential," saidPeter Fertig, a metals consultant atQuantitative Commodity Research.
EURO ZONE CONCERNS LINGER Risk aversion was also stoked by doubts over whether measures to stem the euro zone debt crisis were enough to stop it spreading elsewhere in the bloc, to larger economies such as Italy and Spain.
The prime minister of heavily-indebted Greece told party lawmakers on Wednesday that low interest-rate rescue loans to Greece, agreed at an EU summit last week, amount effectively to a euro bond.
"There is enough uncertainty in both Europe and the US, and concerns about increasing inflation to keep investment demand for gold reasonably well supported," saidDaniel Major, an analyst atRBS.
"There might be some modest selling in the near term as and when some conclusion (for debt talks in the US) is reached, but I don't think there is going to be a massive turnaround in sentiment."
US gold futures for August delivery were up $9.00 an ounce at $1,625.80.
Other precious metals rallied on gold's coattails, with silver printing a new 2-1/2 month high at $41.42 an ounce, before later stabilising at $41.12 an ounce.
Palladium meanwhile rose to its highest since early February after advancing 3.6 per cent on Tuesday, its biggest one-day gain since late April.
"Platinum group metals staged an aggressive rally into yesterday's close," said UBS in a note. "The platinum:palladium ratio trade has become evident again, with funds liquidating platinum and buying palladium."
"Palladium's advantage over platinum... is that once prices start to move, they don't take baby steps. If the hedge fund community is making a comeback, then the $1,000 target will be back in focus," it added.
"Yesterday's price action highlights the impact of investor flows on the palladium price given that its fundamentals weren't any different yesterday than they were a month ago."
Spot platinum was up 0.7 per cent at $1,811.74 an ounce, while spot palladium was up 1.1 per cent at $840.97 an ounce.
Gold hits record as us debt fears deepen
CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
28 July 2011
CAclubindia
