Gold futures rose to a record $1,498.60 an ounce after Standard & Poor’s revised its U.S. credit outlook to negative, boosting the appeal of the precious metal as an alternative to the dollar.
S&P changed its long-term rating from stable, citing “material risk” that policy makers won’t reach an accord on “medium- and long-term budgetary challenges.” Gold has gained 31 percent in the past year, and silver has more than doubled, partly on concern that Europe’s sovereign-debt crisis would escalate.
“The odds are increasing that we’re going to see a credit downgrade in the next few years,” said Matthew Zeman, a strategist at Kingsview Financial in Chicago. “More and more people are looking to gold as the ultimate currency.”
Gold futures for June delivery rose $6.90, or 0.5 percent, to settle at $1,492.90 at 2:04 p.m. on the Comex in New York. In London, gold for immediate delivery rose as much as 0.8 percent to a record $1,497.90.
The Treasury Department has projected that the government will reach the $14.3 trillion debt-ceiling limit no later than May 16 and run out of options for avoiding default by early July.
“The perception that a downgrade would even be possible for the U.S. is driving the gold market,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “The dollar is going to get whacked.”
The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and has pledged to buy $600 billion in Treasuries through June to stimulate growth.
Dollar ‘Debasement’
“People are looking at inflation and at deficits and feeling there’s no way to get out of this without the debasement of the currency,” Zeman of Kingsview said.
The European Central Bank this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation. Debt woes in Portugal and Ireland have escalated.
Some investors sold gold to cover losses in other markets. U.S. equities headed for the biggest drop in a month. In the past four weeks, gold climbed almost 5 percent, and silver surged 21 percent.
“With the magnitude of the drop in stocks, a lot of traders are booking profit in the metals,” saidAdam Klopfenstein, a senior strategist at Lind-Waldock, a broker in Chicago.
Silver futures for May delivery rose 38.5 cents, or 0.9 percent, to $42.956 an ounce on the Comex. Earlier, the price reached $43.56, the highest since 1980.
Palladium futures for June delivery fell $29, or 3.8 percent, to $739.10 an ounce on the New York Mercantile Exchange, the biggest decline in a month.
Platinum futures for July delivery dropped $12, or 0.7 percent, to $1,782.80 an ounce on the Nymex.
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