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Gold hits record, debt fears deepen

Release Date: 
Wednesday, July 27, 2011

Gold prices reached new record highs on the New York Spot Market before falling lower on profit taking. Gold's new record was attributed to continuing concerns of a U.S. default and credit downgrade.  Politicians from both parties remain divided on a plan to raise the debt ceiling with less than a week before the August 2 deadline. "If you have a default of U.S. government debt, there are consequences and it is better to remain in safe haven assets such as gold," said Peter Fertig, a metals consultant at Quantitative Commodity Research. "If there isn't a last minute compromise (in the U.S. debt talks) then the situation will get more and more critical. Gold is one of the alternatives to U.S. treasuries and therefore there is further upside potential."

David Banister, chief investment strategist at ActiveTradingPartners.com, thinks that gold will hit $1,730 in a few weeks and maybe reach $1,800 an ounce. Banister is less concerned with a potential default, instead cautioning investors that the potential for a credit downgrade by one or more agencies is increasingly likely. Stan Dash, vice president of applied technical analysis at TradeStation, also sees prices at $1,730. "You can't argue with price," says Dash. "It's making new highs. It's still a bull market"

Eugen Weinberg, head of commodity research at Commerzbank AG is another analyst who has shifted his focus from the debt ceiling to concerns over the lack of a long-term plan to deal with the country's debt burden. "Virtually everybody expects the debt-ceiling issue in the U.S. to be resolved," said Eugen Weinberg, head of commodity research at Commerzbank AG. "On the other hand, the huge debt burden is not going to disappear following the agreement, and if the agreement is not reached, it would be a massive blow to the market."

(Sources: "Gold Rises to Record as 'Go-to Asset' Amid Debt-Talk Stalemate" Bloomberg, June 27 2011; "Gold, Silver Shine as the U.S. Falters" The Street, June 27, 2011; "Gold Hits Record as Debt Fears Deepen" Rueters, June 27, 2011)

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