Barefoot Investor: Gold Advances to Record as U.S. Debt Deadlock

Gold climbed to a record in London and New York as U.S. lawmakers failed to reach an agreement on raising the federal debt limit, boosting demand for the metal as a protection of wealth.

U.S. House Speaker John Boehner plans to press ahead with a two-step debt-limit extension that President Barack Obama has threatened to veto, fueling concern the nation is lurching toward a default as early as Aug. 2 and jeopardizing its AAA credit rating. Greece’s credit rating was cut three notches by Moody’s Investors Service. Europe’s debt woes helped bullion reach all-time highs in euros and pounds last week.

“Debt problems have again been driving the markets,” James Moore, an analyst at in London, said in a report. “The 50-50 view of a default by the U.S. seems likely to draw more investment demand towards gold as investors lose faith in paper money and seek more tangible assets.”

Immediate-delivery gold gained as much as $22.80, or 1.4 percent, to $1,624.07 an ounce and traded at $1,616.65 by 9:26 a.m. in London. Gold for August delivery was up 1 percent at $1,617 an ounce on the Comex in New York after reaching a record $1,624.30.

Gold is up 14 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index of equities gained 4.3 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities is up 10 percent and Treasuries returned 3.3 percent, according to a Bank of America Merrill Lynch index.

U.S. Debt Ceiling

Republicans and Democrats prepared dueling plans for raising the U.S. debt ceiling, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt. Mohamed A. El-Erian, whose Pacific Investment Management Co. runs the world’s biggest bond fund, said the U.S. may lose its AAA debt rating even if lawmakers avoid a default.

Secretary of State Hillary Clinton today reassured China, the top holder of American debt, the U.S. will resolve the impasse.

“They didn’t reach an agreement on the U.S. debt issue and this uncertainty is getting fed into gold,” said Dominic Schnider, director for wealth management research at UBS AG. While it’s probably going to get solved at the last minute, people are becoming so aware of the ballooning debt in the developed world, there’s a risk that the U.S. will have a rating downgrade, he said. Gold may surge to $1,800 toward the end of the year, Schnider said.

Debt-Laden Greece

Moody’s said today the European Union’s rescue for debt- laden Greece will cause “substantial” losses for investors, amounting to a default. Euro-area leaders have also erected a firewall around Spain and Italy to end the 21-month sovereign bond crisis.

Dennis Gartman, the economist and editor who correctly forecast 2008’s commodities slump, said today in his Suffolk, Virginia-based Gartman Letter that he’ll buy more gold priced in euros and pounds. He had sold some of his gold holdings earlier this month.

Investors boosted gold holdings in exchange-traded products to a record 2,122.6 metric tons on July 20. Assets were 2,120.3 tons on July 22, data compiled by Bloomberg show. Hedge funds and other money managers lifted their net-long gold position by 7.3 percent to 238,319 futures and options contracts in the week to July 19, data from the U.S. Commodity Futures Trading Commission showed.

Silver for immediate delivery climbed 1.3 percent to $40.605 an ounce. Palladium was little changed at $806.50 an ounce. Platinum was down 0.1 percent at $1,792.50 an ounce.(Bloomberg)


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