Gold, trading within 0.7 per cent of a record, is set for the first monthly increase in three as US politicians remain deadlocked on how to raise the federal debt ceiling and avoid a default that may hurt financial markets.
Immediate-delivery gold was little changed at $US1617.55 an ounce in Singapore after reaching an all-time high of $US1628.05 on July 27. Spot gold has rallied 7.8 per cent this month, with gains also driven by the sovereign-debt crisis in Europe that pushed bullion in euros and pounds to all-time highs.
A House of Representatives vote on Speaker John Boehner’s deficit-cutting plan was delayed again yesterday, further eroding the time left to craft a deal. Senate Democrats have said they will kill the proposal, while President Barack Obama has threatened a veto. US borrowing authority expires August 2.
“While the threat of a default gets nearer, investors are still fairly confident they will reach a deal over the weekend, which will see gold come under pressure,” Huang Wei, analyst at Huatai Great Wall Futures. Huang was ranked seventh in a poll of China gold analysts by the Futures Daily and Securities Times.
The US Treasury is said to have a contingency plan if policy makers fail to reach an agreement, giving priority to making interest payments to bondholders, according to an administration official. The budget impasse has led to concerns that the US will lose its AAA credit rating.
Gold for December delivery in New York traded at $US1620.10 an ounce after climbing to a record $US1631.20, also on July 27. Holdings in exchange-traded products climbed for a fourth day yesterday, rising to an all-time high of 2150.464 metric tons, data compiled by Bloomberg show.
Worse than Lehman
Former Bank of England Deputy Governor John Gieve said that US officials’ delay in agreeing on a deal runs the risk of a disaster that would echo the collapse of Lehman Brothers Holdings. Larry Summers, a former Treasury Secretary, has said that the consequences would be worse than Lehman’s.
“We expect that Congress will reach an agreement on raising the US debt ceiling,” Lachlan Shaw, an analyst at Commonwealth Bank of Australia, wrote in an e-mail today. “However, each day that passes without a concluded agreement increases the odds of a disruptive outcome.”
Standard & Poor’s yesterday joined Fitch Ratings and Moody’s Investors Service in cutting Greece’s credit rating, saying the nation will partially default. All three agencies have said they will downgrade the US’s AAA rating should a failure to raise the borrowing limit lead to a default.
Bullish Barrick
A rally in gold to $US2000 an ounce is “not hard to imagine,” Aaron Regent, chief executive officer of Barrick Gold, the largest producer of the metal, said yesterday. Demand is being driven by the debt crises in the US and Europe, central-bank buying and diversifying investors, Regent said.
European leaders announced 159 billion euro ($207 billion) in a second bailout package for Greece on July 21, stemming a contagion that was spreading to Spain and Italy. They also tapped their 440-billion euro rescue fund to buy debt across stressed euro nations, aid troubled banks and offer credit-lines.
Cash silver, which ended June at $US34.69 an ounce, traded little changed at $US39.8138. Spot platinum fell 0.2 per cent to $US1785 an ounce, and is set for a monthly advance after declines in May and June. Palladium was little changed at $US827.75 an ounce, also set for the first monthly rise in three.
Source: bloomberg
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