Gold Rallies to Record for Second Day as Signs of Slowdown Fire Up Demand

Bloomberg

By Pham-Duy Nguyen and Nicholas Larkin - Aug 3, 2011 5:35 PM GMT+0300

Gold rose to a record $1,675.90 an ounce in New York on signs that the U.S. economy is faltering amid debt woes, boosting demand for the precious metal as an investment haven.

Moody’s Investors Service said the U.S. credit rating may be downgraded and yesterday placed the country on negative outlook after President Barack Obama signed into law a plan to lift the nation’s borrowing limit and cut spending. Gold priced in euros also reached a record on concern that slowing growth will hamper efforts by Spain and Italy to trim debt.

“People want gold for safety,” Frank Lesh, a trader at Future Path Trading LLC in Chicago, said in a telephone interview. “People are running away from currency volatility, economic weakness and political instability. Gold is an international currency, and no government can print any of it.”

Gold futures for December delivery rose $29.30, or 1.8 percent, to $1,673.80 at 10:32 a.m. on the Comex in New York. The previous record was $1,664.50, reached yesterday.

Prices are up 18 percent this year, heading for the 11th straight annual gain. Investors also bought the metal as a hedge against inflation as the Federal Reserve kept borrowing costs near zero percent since December 2008 and completed two rounds of so-called quantitative easing to help bolster the economy.

Berlusconi Address

European leaders last month agreed on a second bailout for Greece. Italy’s Prime Minister Silvio Berlusconi will give a national televised address today to reassure citizens as the nation and Spain struggle to avoid becoming the next victims of Europe’s debt crisis.

“A barely expanding U.S. economy and its implications for the world are now at the forefront of investors’ minds,” Edel Tully, a London-based analyst at UBS AG, said today in a report. “Neither European nor U.S. debt issues have been comprehensively dealt with. Data since last Friday have increased expectations for further quantitative easing” by the Fed, she said.

UBS raised its one-month forecast to $1,725 from $1,575 and increased its three-month estimate to $1,850 from $1,600.

Holdings of the metal in exchange-traded products rose for a seventh day yesterday, climbing 20.3 metric tons to a record 2,173.9 tons, data compiled by Bloomberg show.

Silver futures for September delivery rose $1.773, or 4.4 percent, to $41.865 an ounce on the Comex.

Palladium futures for September delivery fell $17.90, or 2.2 percent, to $809 an ounce on theNew York Mercantile Exchange. Platinum futures for October delivery slid $5.30, or 0.3 percent, to $1,788.20 an ounce on the Nymex.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle atpnguyen@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net