US debt crisis powering gold prices say experts

Gold.jpg

Price hits $1,633 on July 29 as debt resolution deadline looms.

Gold’s short-term prices may depend on the resolution of the US debt crisis, the deadline of which is tomorrow, say reports from the US.

Analysts have told JCK that, as the metal hit another record on July 29, if the United States can’t meet its debt obligations then prices may hit the $2,000 (£1,215) mark.

Jeff Clark, senior precious metals analyst for Casey Reseach in the United States said, “The price of gold could hit $2,000 overnight,” but, he added, “I don’t think there will be a default. That is unthinkable."

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In London, commodities analyst Sierra Highcloud of VM Group agreed with Clark.

"I think that a default will be gold-positive," he said. "But in the event of a calamitous event like that, as with the crisis in 2008, there could be indiscriminate selling of all kinds of assets. So that is a difficult one to predict."

Highcloud said that the last month has been very good for gold, as people trade on the back of the fear factor of a default. "I think a resolution will be negative for gold but that will just be temporary,” he said.

If an end to the stalemate is reached before the deadline, the analysts expect a small correction in the price and both Clark and Highcloud say there are other reasons for the gold price to rise beyond the US debt crisis.

A Wall Street Journal report quoted Jeremy Friesen, a commodity strategist for Societe Generale Corporate and Investment Banking. He said the news is "near-term bearish" for gold, although Friesen described both silver and gold as having "fairly good support" from continued tail risks and negative real interest rates.

The Wall Street Journal report states that Tokyo and Hong Kong traders believe gold prices are poised to rebound once the market digests the US news, with continuing concerns over the European debt crisis.

Silver prices have lowered slightly in imitation of the gold price, falling to $39.41 (£24) per ounce, down 49 cents from their previous close. The metal is likely to trend with gold in the next few days but it will continue to sell to safe-haven investors seeking a safe but less expensive alterantive to gold.

Platinum and palladium have risen in price as the US news boosted the outlook for physical demand for the metals. Platinum gained $17.00 to $1,792 (£1,090) per ounce and palladium rose $10.00 to $836 (£509) per ounce.

But it’s not just the US debt crisis which is affecting prices. Factors such as the Hong Kong Exchange trading in gold and silver and rising demand for gold in Asia have bolstered prices.

“The Hong Kong Exchange now has gold and silver futures trading,” said Clark. “The Swiss Parliament is expected later this year to discuss the creation of a gold franc.

“A recent survey of 80 central bank reserve managers predicted that the most significant change the next 10 years will be their intentional build up in gold reserves. And there’s already a gold rush underway in most of Asia,” he added.

Clark argued that traders and individuals aren’t buying gold just “because Barack Obama and John Boehner can’t get along."

"They’re buying gold because inflation is scourging every part of life, because their currencies are losing value, because there’s an increasing lack of confidence in governments to solve the problems.”

Gold hit a new all-time record on July 29, reaching $1,633 (£992) an ounce.

 

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