Gold Advances to Record on Debt Crisis

By Nicholas Larkin and Pham-Duy Nguyen

Gold climbed to a record as concern about Europe’s debt woes and a lower dollar boosted demand. Photographer: Chris Ratcliffe/Bloomberg

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July 13 (Bloomberg) -- Christin Tuxen, an analyst at Danske Bank A/S, discusses the outlook for gold prices. Tuxen, speaking from Copenhagen with Owen Thomas on Bloomberg Television's "Countdown," also talks about volatility in silver prices and the performance of the U.S. dollar. (Source: Bloomberg)

Gold climbed to a record in New York on concern that Europe’s debt crisis will spread. Silver prices surged the most since March 2009.

Ireland joined Portugal and Greece yesterday as the third euro-area nation to have its credit rating cut to below investment grade. The dollar fell against a six-currency basket on signs that the Federal Reserve will continue to use monetary stimulus to revive the U.S. economy. Investors have boosted holdings of exchange-traded products backed by precious metals to more than $125 billion.

“We’re in a very difficult financial period in the world,” Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages more than $50 billion, said on July 11. “The faith in paper currency is rapidly ebbing.”

Gold futures for August delivery climbed $24.30, or 1.6 percent, to $1,586.60 an ounce at 10:53 a.m. on the Comex in New York, after touching a record $1,587.20. The previous all-time high of $1,577.40 was set on May 2.

Prices extended gains today after Fed Chairman Ben S. Bernanke told Congress that the central bank is “prepared to respond” by taking additional stimulus action if the economy appears to be stalling.

The metal has doubled since Dec. 1, 2008, as the U.S. central bank kept interest rates at a record low and governments spent trillions of dollars to spur global growth. The Fed’s second round of so-called quantitative easing, known as QE2 among investors, ended in June.

‘Currency Exhaustion’

“People are getting currency exhaustion,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in Chicago. “With the Fed mulling over a possible QE3, which will dilute the dollar, gold is the main beneficiary.”

Immediate-delivery gold reached a record $1,586.18. Prices are up 11 percent this year, heading for an 11th straight annual gain, the longest rally since at least 1920 in London. Bullion also rose to all-time highs in euros and British pounds today.

“With European sovereign debt fears intensifying again, little clarity on what euro-zone officials intend to do next and cross-asset market confidence taking a bashing,” gold is benefiting, Edel Tully, a London-based analyst at UBS AG, said in a report today. “This should, in theory, be gold’s time to shine as a safe haven and as an alternative currency.”

Other Assets

Before today, the MSCI All-Country World Index of equities gained 1.5 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities was up 9.2 percent and Treasuries returned 3.6 percent, according to a Bank of America Merrill Lynch index. The U.S. Dollar Index, the six-currency gauge, lost 4.1 percent this year through yesterday.

Holdings in exchange-traded products backed by bullion rose 1 percent to 2,087 metric tons yesterday. It was the biggest jump in more than a year.

Silver futures for September delivery rose $2.446, or 6.9 percent, to $38.08 an ounce on the Comex. A close at that level would mark the biggest gain since March 19, 2009. Before today, prices were up 15 percent this year.

Platinum futures for October delivery gained $31.70, or 1.8 percent, to $1,768 an ounce on the New York Mercantile Exchange. Palladium futures for September delivery advanced $19.20, or 2.5 percent, to $786.65 an ounce.