Gold futures gain more than $20 an ounce

Silver tracks gold higher, but copper, platinum, palladium prices slip

SAN FRANCISCO (MarketWatch) — Gold futures gained more than $20 an ounce Wednesday, extending sharp gains made the previous day in New York, with global-debt troubles back on center stage.

Gold for August delivery was up $20.10, or 1.3%, at $1,532.80 an ounce on the Comex division of the New York Mercantile Exchange. The contract, which earlier touched a high of $1,534.50, hasn’t traded at levels this high since June 22.
Prices for the precious metal jumped more than $30 an ounce in regular trading on Tuesday, buoyed by safe-haven buying as Europe’s debt issues reemerged as a concern for investors.

“The persistent debt problems in both Europe and the U.S. are a big part of gold’s gains this week,” said Peter Grant, senior metals analyst at USAGold-Centennial Precious Metals Inc.

“It’s quickly becoming a question of credibility,” he said. “As the troika flails about trying to mitigate the Greek crisis without creating a default, they erode market confidence. That waning confidence in the troika has resulted in contagion to Portugal in the wake of yesterday’s downgrade.”

On Monday, the Standard & Poor’s credit-rating firm signaled that a plan to roll over Greek-government debt would constitute a “selective default.” Then on Tuesday, Moody’s Investors Services downgraded Portugal’s credit rating by four notches to speculative grade.

Also contributing to gains in gold is the local-government-debt story in China, said Grant: “Investors are worried that if China turns inward to address their own debt woes, it may be at the expense of Europe and America.”

The People’s Bank of China lifted lending and deposit rates 0.25 percentage point on Wednesday, marking the third such adjustment this year.

Seasonal surge

The focus, however, remains on debt problems in Europe and the U.S.

“Gold’s current strength signals that something’s very seriously amiss on both sides of the Atlantic,” said Adrian Ash, head of research at BullionVault.com, an online service for gold-bullion trading and ownership.

He points out that gold bulls typically take a holiday in July through September, thanks primarily to the seasonal lull in Indian demand but also thanks to the broader “sell in May” drop-off in all financial trading.

“But if Greece, Portugal and the U.S. debt-ceiling ruckus don’t allow that typical pullback to come through, gold prices could run straight onto their very typical autumnal surge,” said Ash. “India’s festive demand will then return, running straight onto China’s heavy New Year gold buying in January/February.”

For now, U.S. and euro-zone debt looks likely to dominate traders’ views in the coming days, but players will also be paying close attention to key U.S. jobs data this week, and to Thursday’s rate meetings by the European Central Bank and Bank of England, said James Moore, analyst at TheBullionDesk.com, in a note to clients Wednesday.

Weekly filings for unemployment benefits are due out from the Labor Department on Thursday, followed by figures on U.S. joblessness and growth in nonfarm payrolls for June on Friday.

Gold prices gained more ground shortly after the Institute for Supply Management said its U.S. services-sector index for June fell to 53.3% from 54.6% in May. Economists surveyed by MarketWatch had expected a dip to 54%; a reading over 50% indicates that more firms in the survey are expanding than contracting.

In other metals action on Wednesday, September silver rallied 71 cents to $36.12 an ounce, while September copper declined 0.6 cent to $4.34 per pound.

September palladium traded flat at $775.65 an ounce, while October platinum declined $3.40 to stand at $1,738.70 an ounce.

Myra Saefong is a MarketWatch reporter based in San Francisco. Sarah Turner is MarketWatch's bureau chief in Sydney.