Gold Breaks $1,600 on Debt Worries

The Wall Street Journal – The price of gold cracked $1,600 a troy ounce for the first time ever, as storm clouds on the macroeconomic horizon heightened the appeal of the precious metal.

In New York, futures reached $1,603.80 a troy ounce, a record intraday high for the most-active contract. That contract, for August delivery, was up $9, or 0.6%, at $1,599.10 a troy ounce in midmorning trade on the Comex division of the New York Mercantile Exchange.

In Europe, spot gold touched a record high of $1,603.29 an ounce, as concerns over debt contagion in Europe and failing confidence in the U.S. economy attracted investors to the perceived safety of gold.

“If you’re concerned about either the euro-zone or U.S. debt issues, there’s a reason to buy gold,” Mitsui analyst David Jollie said.

Late last week, stress tests of European banks failed to boost confidence in the region, while negotiations to raise the U.S. borrowing limit have continued to show little signs of progress, even as ratings agencies warned that a delay in payments to creditors would jeopardize the country’s sterling credit rating. The Treasury Department has said Congress must raise the U.S. debt limit before Aug. 2 to meet all of its obligations to creditors.

Gold’s march above the psychologically important $1,600 mark is likely to draw interest from investors who place bets based on patterns in trading activity, market participants say. Some investors look to gold’s performance near such round numbers as a sign of the market’s momentum.

Gold has broken through several such century marks since worries mounted last year about the financial health of the European Union. Comex futures have surged 44% since worries about Greece’s fiscal situation began to pile up at the beginning of 2010.

Even as gold surges to record-high territory, “investors see enough uncertainty in the world to warrant further gold purchases,” said George Gero, vice president with RBC Capital Markets Global Futures. “There’s more distrust of the political process, and we’re on debt-ceiling and euro-zone watch.”

Some investors buy the yellow metal on the belief that it holds its value better than other assets during economic turmoil, and big-picture economic worries have sent gold on a steep rally in recent weeks. Futures have gained for nine consecutive sessions.

Negotiations to raise the U.S. borrowing limit have continued to show little signs of progress, even as ratings agencies warn that a delay in payments to creditors would jeopardize the country’s sterling credit rating. The Treasury Department has said Congress must raise the U.S. debt limit before Aug. 2 to meet all of its obligations to creditors.

Demand for a safe haven also remains underpinned by the struggle to manage the high debt levels of some euro-zone members. The cost of insuring the sovereign debt of Italy, Spain, Ireland, Portugal and Greece all rose Monday, a sign that investor concerns didn’t disappear following Friday’s announcement of the results of stress tests on European banks.

Most banks passed the tests, which were designed to measure bank performance should European economic conditions worsen. But market watchers said they may not have been strenuous enough to be an accurate gauge of the perilous state of European financial markets. An emergency summit of European leaders is scheduled for Thursday.

The amount of gold held by exchange-traded funds, popular tools for investors to gain exposure to gold, reached a record high Friday at 2156.4 metric tons, according to Barclays Capital.

“Both short-term and longer-term interest has turned significantly positive over recent sessions,” Barclays analyst Suki Cooper said in a note.

Silver, another precious metal that can receive a boost when investors are looking for a safe place to park cash, surged to a 10-week high above $40 an ounce Monday. September-delivery silver was up $1.284, or 3.3%, at $40.355 a troy ounce in midmorning trade.

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