Gold may advance to a record for a fourth day, topping $1,500 an ounce, as Standard & Poor’s downgrade of the U.S. credit outlook, Europe’s debt crisis and rising inflation bolstered the appeal of precious metals.
Immediate-delivery bullion was little changed at $1,495.30 an ounce at 7:55 a.m. in Singapore, after touching an all-time high of $1,497.90 an ounce yesterday. Gold for June delivery in New York rose as much as 0.3 percent to $1,497.40 an ounce before trading at $1,495.70, near its record $1,498.60.
“This is a shocker and a stunner,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. “The U.S. has the world’s reserve currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process.”
S&P changed its long-term rating from stable, citing “material risk” that policy makers won’t reach an accord on “medium- and long-term budgetary challenges.” The move followed last week’s downgrade by Moody’s Investors Service of Ireland’s credit rating by two notches to the lowest investment grade, eroding the value of the euro. The dollar has declined 4.5 percent against a basket of currencies this year.
Gold has gained every year since 2001 on increased investment demand for commodities and on concern that currencies may be debased as central banks stimulate their economies. Unrest in the Middle East, sovereign-debt turmoil in Europe and Japan’s nuclear crisis have bolstered sales, propelling bullion 31 percent higher in the past year.
Credit Downgrade
Pento, who correctly predicted gold’s rally in the past three years, said the metal will reach $1,600 in 2011.
“The U.S. credit rating will undoubtedly be lowered in the next few years,” Pento said. “This will mean much higher borrowing costs and a much lower currency.”
The Treasury Department has said the borrowing limit will be reached no later than May 16, at which point it will turn to emergency measures that provide borrowing room through about July 8. Republican leaders in Congress have said they won’t back increasing the debt ceiling unless President Barack Obama agrees to more specific steps to trim the budget deficit.
Additional support for gold came from rising inflation that has prompted policy makers across the globe to raise interest rates. Consumer prices in China rose at their quickest pace since 2008 in March, exceeding the government’s 2011 target for a third month.
Inflation in the 17-nation euro region quickened to 2.7 percent from 2.4 percent in February, the European Union’s statistics office said last week. U.S. wholesale costs rose 5.8 percent in March compared with a year earlier, and the government said that the cost of living rose for a ninth month.
‘Growing Fears’
“Growing fears of rising inflation and a weak dollar continue to benefit gold and silver,” Marc Ground, an analyst with Standard Bank, wrote in a note. “Inflation-hedge buying is providing the main impetus.”
Total gold demand rose for a third yearly gain in 2010, led by a 66 percent jump in sales of physical gold bars to a record 880.5 metric tons, according to researcher GFMS. Gold held in exchange-traded products rose 19.3 tons to 2,069.95 tons on April 15, the highest level since Jan. 24, data compiled by Bloomberg from 10 providers show.
“One of the most interesting highlights is the massive growth in physical gold bar investment,” David Wilson, London- based analyst with Societe Generale, wrote in a note.
Cash silver fell 0.4 percent to $43.2575 an ounce after rallying 1.2 percent to $43.525 an ounce, the highest price since 1980 yesterday. Palladium added 0.3 percent to $737.75 an ounce and platinum increased 0.1 percent to $1,783.25 an ounce.
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