Gold Poised for Second Weekly Advance After Rallying to Record

Gold headed for a second weekly increase on US Federal debt ceiling concerns as well as the debt crisis that has been going on in Europe for some time now. Both Standard & Poor's as well as Moody's put the US credit rating on watch for a downgrade, also boosting the precious metal.

Thursday, July 14, 2011
Jake Lloyd-Smith, Thomas Abraham
San Fransisco Gate

July 15 (Bloomberg) -- Gold headed for a second weekly increase after rallying to a record yesterday on concern that the wrangling in the U.S. over the Federal debt ceiling and the sovereign-debt crisis in Europe will boost haven demand.

Immediate-delivery bullion traded 0.2 percent lower at $1,583.65 an ounce at 10:51 a.m. in Singapore, still 2.6 percent higher this week. Gold dropped from its record $1,594.45 after Federal Reserve Chairman Ben S. Bernanke said that he's not prepared to take immediate action to stimulate the economy.

Standard & Poor's Ratings Services yesterday joined Moody's Investors Service in putting the U.S. credit rating on watch for a downgrade. U.S. Treasury Secretary Timothy F. Geithner warned there's no possible extension to the time limit to raise the debt ceiling. He has repeatedly said U.S. borrowing authority will end on Aug. 2 without congressional action.

"The next psychological barrier will be around the $1,600 level," Natalie Robertson, an analyst at Australia & New Zealand Banking Group Ltd., said from Melbourne. "Given all the uncertainty in the market with the European debt crisis and more recently the U.S., the risk-off sentiment will continue."

In Europe, results of stress tests on 91 banks as part of an effort to reassure investors the region's lenders have enough capital will be released by the European Banking Authority today. This week, Ireland became the third nation in the European Union to have its credit rating cut below investment grade.

Gold for August delivery in New York fell 0.3 percent to $1,584.10 an ounce after reaching an all-time high of $1,594.90 yesterday. Spot silver was little changed at $38.3025 an ounce after yesterday's gain to $39.365, the highest price since May 5.

'Lot of Upside'

"We do see a lot of upside in gold prices given it's already passed the key resistance level of around $1,550," said Robertson, referring to a price at which sell orders may have been clustered. "Net-long gold positions have fallen, so there is some more room for long positions to build again. Exchange- traded fund flows are also improving."

Hedge-fund managers and other large speculators cut net- long positions in New York gold futures by 21 percent in the past month, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets on gains, beat short positions by 157,775 contracts in the week to July 5.

Product Holdings

Holdings in exchange-traded products backed by gold increased for a sixth day yesterday to the highest level since January. Gold held by the products stood at 2,090.34 metric tons yesterday, according to data compiled by Bloomberg.

Twenty-four of 27 traders, investors and analysts surveyed by Bloomberg said that bullion will rise next week on increased demand for a protection of wealth. "Investors are once again looking toward gold and the other safe-haven asset types," said James Moore, an analyst at TheBullionDesk.com in London.

The Dollar Index, a six-currency measure of the dollar's value, dropped as much as 0.3 percent today after ending little changed yesterday. S&P said there's at least a 50 percent chance it will cut the AAA rating within 90 days. Gold tends to move inversely to the dollar.

Cash platinum declined 0.4 percent to $1,757.30 an ounce, while palladium lost 0.4 percent to $774.25 an ounce.

--Editors: Jake Lloyd-Smith, Thomas Abraham

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