Europe, US debt woes may spur gold demand

LONDON: Gold may rise toward a record set on Wednesday in London as concern that the US and Europe will struggle to contain their debt burdens spurs demand for the metal as a protection of wealth.

US lawmakers remained at odds on how to raise the country’s debt limit in time to avoid a default. Standard & Poor’s said Greece will partially default once European officials push through a second bailout plan for the nation agreed to last week. Gold reached a record $1,628.05 an ounce on Wednesday.

“Gold is still the best safe-haven investment,” said Bernard Sin, head of currency and metal trading at bullion refiner MKS Finance in Geneva. “In the US, we don’t know what damages are going to be created. If you look at Europe, you still have a lot of debt problems.”

Immediate-delivery gold rose $1.10, or 0.1%, to $1,614.75 an ounce by 11:21 a.m. in London. Gold for December delivery was little changed at $1,617.50 on the Comex in New York after reaching a record $1,631.20 on Wednesday. Bullion fell to $1,617.50 an ounce on Thursday morning “fixing” in London, used by some mining companies to sell output, from $1,625 at on Wednesday’s afternoon fixing.

Gold is up 14% 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 2% in 2011, the Standard & Poor’s GSCI Index of 24 commodities is up 9.8% and Treasuries returned 3.3%, according to a Bank of America Merrill Lynch index.

The House of Representatives planned to vote on Thursday on a debt-limit increase proposal that confronts unified Democratic opposition in the Senate. BlackRock, Franklin Templeton Investments, Loomis Sayles, Pacific Investment Management and Western Asset Management are among those warning the US may lose its top-level debt rating as officials struggle to raise the $14.3 trillion borrowing limit and reduce spending.

“There are major fundamental issues around the size of debt, the inability to control spending,” Sean Boyd, chief executive officer of Agnico-Eagle Mines, North America’s fifth-largest gold producer, said. Debasement of paper currencies “is forcing people to start to look at gold,” he said.

S&P on Wednesday lowered its ranking for Greece to CC, two steps above default, and said the outlook on the debt is negative. Last week’s accord strengthened the region’s bailout mechanism to offer protection to other euroregion nations such as Ireland and Spain to avert contagion.

“Physical demand is generally staying absent at gold prices above $1,610,” Edel Tully, a Londonbased analyst at UBS, said in a report. “The fact that we’ve begun to see average purchases at these levels suggests that buyers are starting to adjust to a much higher gold price.”

Silver for immediate delivery fell 0.7% to $39.9975 an ounce after on Wednesday climbing to a 12-week high of $41.45.