Gold powers above $1600 on debt fears

2011-07-18 11:51

Singapore - Gold prices rallied to record highs above $1 600 an ounce in Europe on Monday as investors - spooked by the eurozone debt crisis and the threat of a US default - bought into the metal as a haven from risk.
Spot gold rose as high as $1 600.40/oz and was up 0.4% at $1 598.76/oz in morning trade. Gold rose more than 3% for a second straight week to Friday, a feat it has not achieved since February 2009.
Data from US futures regulator the Commodity Futures Trading Commission showed on Friday that managed money sharply raised bullish bets in US gold futures and options in the week ended July 12, as bullion prices rallied.
“CFTC data shows a surge into gold, so despite the higher levels the professionals have returned to gold with a vengeance,” said Saxo Bank analyst Ole Hansen.

“The stress test result was met with a lukewarm response, with focus again switching back to Europe. When that happens, gold is often allowed to perform despite the dollar strengthening at the same time.”

Sovereign default fears are growing in both Europe and the United States. The United States is struggling with deficit reduction talks ahead of the White House’s July 22 deadline on a deal to raise the $14.3 trillion debt ceiling.

Eurozone ministers will meanwhile meet on Thursday to discuss the financial stability of the euro area.

German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece, as pressure rose for radical action to cut the country’s debt burden.
On the foreign exchange markets, the euro slid 0.7% against the dollar. Sovereign debt worries led investors to shift funds into safe haven currencies like the Swiss franc and cut exposure to riskier assets.

Gold rallied across a number of major currencies, also hitting record highs in euro, sterling, rand and Canadian dollar terms.

“Investors are increasingly looking to gold as a safe haven as the US dollar, pound sterling and the euro continue to devalue against stronger currencies such as those of Canada, Australia, Norway and Switzerland,” said Angelos Damaskos, chief executive of Sector Investment Managers.

“Sovereign debt problems in the developed world persist and continue to hamper economic growth. Quantitative easing is the easy solution but rising inflation creates a headache for central bankers.”

Stocks under pressure
Stock markets fell in Europe as bank stocks came under pressure after a capital stress test failed to dispel fears about the regional debt crisis, while Bund futures opened higher as uncertainty ahead of a eurozone meeting this week underpinned appetite for safe haven assets.

US 10-year Treasury notes fell in Asian trade on Monday, with intraday moves set to stay choppy in the near term due to uncertainty about the fate of US debt talks and worries over the eurozone’s sovereign debt crisis.

US gold futures for August delivery were up $9.50/oz at $1 599.60, having peaked at $1 601.20.

Other commodities appeared lacklustre, meanwhile, with Brent crude oil easing 0.6% and US crude futures 0.2%. Industrial metals like nickel and aluminium eased, while bellwether copper was little changed.

Growing worries of a possible sovereign debt default on either side of the Atlantic are also weighing on oil prices.

Meanwhile, other precious metals tracked gold higher, with silver rising above $40/oz for the first time since early May. The grey metal rallied to a record $49.51 an ounce in April before correcting sharply.

It has rallied more than 15% in the last two weeks, however, as gold prices have risen.

“Towards the end of the summer, an expected pick-up in interest in silver could take the gold/silver ratio lower for the rest of 2011,” said BNP Paribas in a report released Friday.

“In 2012, the silver price may in turn weaken as the outlook for gold turns more negative.”

Silver peaked at $40.15/oz and was later bid at $39.95/oz against $39.27. Spot platinum was bid at $1 759.50/oz versus $1 748, while spot palladium was at $782.72/oz against $771.