Gold prices hit record highs

a US default prompted investors to buy precious metals as a haven from risk.
Bitterly divided Republican and Democratic party leaders are scrambling to find common ground with less than a week before the government hits its borrowing limit approved by Congress, potentially triggering a default.
“If you have a default of US government debt, there are consequences and it is better to remain in safe haven assets such as gold,” said Peter Fertig, a metals consultant at Quantitative Commodity Research.
“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 to US treasuries and therefore there is further upside potential.”
Even if it reaches agreement to avoid this, it could still lose its top-notch credit rating, analysts said.
Spot gold hit a record US$1 625,24 an ounce and was up 0,3 percent at US$1 623,10 an ounce.
It has risen 14 percent so far this year, lifted by worries over European and US debt, and supported by rock-bottom interest rates and longer term inflation fears.
The dollar sank to a three-month low against a basket of currencies as investors worried about the prospect of default in the US and the possible downgrade of its credit rating.
While 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, risk assets have come under pressure.
Stock markets declined in Europe, oil prices fell and industrial metals pared early gains.
“The longer-term implications of the debt ceiling impasse may be gold-bullish. In a Reuters poll, 30 of 50 economists surveyed said the US would lose its triple-A credit rating from at least one of the major rating agencies,” said HSBC.
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 like Italy and Spain. This lifted German government bonds.
Heavily-indebted Greece’s prime minister told party lawmakers yesterday 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,” said Daniel Major, an analyst at RBS. 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.”
In Asia, the world’s biggest physical gold consumer, record-high prices prompted some scrap selling back onto the market, lowering premiums. US gold futures for August delivery were up US$6,70 an ounce at US$1 623,50.
Other precious metals rallied on gold’s coattails, with silver printing a new 2-1/2 month high at US$41,18 an ounce. It was later up 0,5 percent at US$41,06 an ounce.
Palladium, meanwhile, rose to its highest since early February after rising 3,6 percent, 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 US$1 000 target will be back in focus,” it added. – Reuters.