Worries over euro-zone crisis and U.S. debt ceiling boost gold
By Polya Lesova and Virginia Harrison, MarketWatch
LONDON (MarketWatch) — Gold futures rallied above $1,600 an ounce in electronic trading on Monday, as concerns about the euro-zone debt crisis and the lack of agreement on raising the U.S. debt ceiling prompted investors to seek a safe haven in the precious metal.
Gold for August delivery rose $7.90, or 0.5%, to $1,598 an ounce on the Comex division of the New York Mercantile Exchange in very early morning U.S. trading. Earlier in the day, the contract surged as high as $1,601.20 an ounce, according to data from FactSet.
Gold futures finished last week at a record nominal settlement price of $1,590.10 an ounce.
“European sovereign fears, combined with wrangling over raising the debt ceiling, have boosted safe havens,“ said Kathleen Brooks, an analyst at Forex.com, in a note.
“Recently gold has outpaced silver; however, with gold reaching a record $1,600 per ounce this morning, we think that silver may play catch up,“ she said.
In Europe, Italian and Spanish government bond yields rose sharply, as investors were spooked by the ongoing uncertainty over the ability of European officials to agree on a second aid program for Greece and stop contagion from Greece’s troubles to other countries such as Spain and Italy.
Investors tend to buy gold as a store of value during times of financial turmoil. Meanwhile, worries about rising inflation — enhanced by the possibility of the injection of further stimulus into the U.S. economy — have also supported gold, which is seen as an inflation hedge.
The impasse in U.S. debt ceiling talks has further added to gold’s appeal, as the Aug. 2 deadline for Congress to pass legislation to prevent a default loomed. Read the latest on debt-ceiling negotiations in Washington.
Silver for September delivery rose 82 cents, or 2.1%, to $39.90 an ounce on the Nymex.
Silver was the worst performer among precious metals in the second quarter, but it could outperform gold toward the end of the summer, according to Anne-Laure Tremblay of BNP Paribas.
“If current uncertainties about the debt deal in the U.S. and risks of contagion of the fiscal crisis in the euro zone subside, then the gold price, to which silver is tied, may be range-bound during the summer,” Tremblay said in a note.
“Silver could outperform gold once more toward the end of summer, and we would expect the gold-silver ratio to start declining once more as a result,” she said.
In other metals trading, copper for September delivery was unchanged at $4.41 a pound.
Meanwhile, the dollar index , which tracks the U.S. unit’s performance against a basket of six rival currencies, rose to 75.539, up from 75.148 in North American trade late Friday.
Polya Lesova is chief of MarketWatch’s London bureau. Virginia Harrison is a MarketWatch reporter based in Sydney.