Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. Silver surged to a 1980 high.
“Lofty oil prices, inflation concerns, worries over the euro zone sovereign debt crisis as well as political tensions in places like the Middle East should keep gold strong for the time being,” said one analyst.
“There are not a great deal of reasons to sell it at the moment, apart from concerns that there are a lot of longs in the market and there is a risk of sell-off at some point,” said Darren Heathcote, head of trading at Investec Australia.
In trading in Hong Kong, gold hit a record $1,500.70 an ounce, which traders said was mainly a response to Standard & Poor’s downgrade of U.S. debt to negative from stable. Gold has climbed 32 percent in the past year, and silver prices have more than doubled.
“The U.S. credit rating will undoubtedly be lowered in the next few years,” said Michael Pento, a senior economist at Euro Pacific Capital in New York.
He added: “This will mean much higher borrowing costs and a much lower currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process.”
Natalie Robertson, commodities strategist at ANZ, said: “I don’t see prices convincingly past that level in the next few days unless we see something very negative, probably related to the eurozone sovereign debt. “But we do see gold very well supported at the $1,490 level,” she added.
Silver climbed as much as 2.8 percent to $44.175 in after- hours trading. The most-active contract settled up 95.7 cents, or 2.2 percent, to close at $43.913 an ounce.
The gold:silver ratio – the number of silver ounces needed to buy an ounce of gold – meanwhile fell to its lowest since 1983 at 33.8. “Silver is like gold on steroids,” said Jon Nadler, an analyst at Kitco Inc. in Montreal.
Platinum was at $1,786.24 an ounce against $1,761.50, while palladium was at $753 against $726.95.
“The last time silver was this expensive in relation to gold was almost 28 years ago,” said Commerzbank in a note. “Both precious metals are still reaping the benefit of the news of recent weeks and days.”
Euro Pacific’s Pento, who correctly predicted gold’s rally in the past three years, said the metal will reach $1,600 in 2011. The commodity has gained every year since 2001 on increased investment demand for raw materials.
“The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets,” said Lim Chae Myung, a Seoul-based trader with Hyundai Futures Co.
The Treasury Department projected that the government may reach the $14.3 trillion debt-ceiling limit as soon as mid-May and run out of options for avoiding default by early July.
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.
The ECB this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation. The Fed probably won’t risk damping economic growth by raising borrowing costs rapidly, Pento said.
Analysts at Barclays Capital believe gold could go up to $1,520 an ounce in the next two to four weeks. Many investors see gold and other precious metals as the best place to park their money in times of uncertainty. [via Bloomberg, BBC and Reuters]