August 8th, 2011

Gold futures climbed to a record after Standard & Poor’s cut the top U.S. credit rating, fueling a slump in equities and commodities amid concern that the global economy is slowing.

The S&P 500 Index lost as much as 2.4 percent, while the Thomson Reuters/Jefferies CRB Index of 19 raw materials touched 321.26, the lowest since Dec. 20, after S&P cut the U.S.’s long- term rating one level to AA+ from AAA on Aug. 5. The agency described the outlook as “negative,” and criticized the nation’s political system for failing adequately to address deficit reduction.

“There is heavy buying in gold because of the uncertainty surrounding the U.S. economy,” Matthew Zeman, a strategist at Kingsview Financial in Chicago, said in a phone interview. “For gold, the sky is the limit.”

Gold futures for December delivery rose $49.90, or 3 percent, to $1,701.70 an ounce by 9:06 a.m. on the Comex in New York, heading for the biggest gain since Nov. 4. Earlier, prices surged to a record $1,718.20.

Prices could jump to $2,000 in the next few weeks, Zeman said.

The precious metal has surged 20 percent in 2011, gaining for an 11th year, as the sovereign-debt crisis and a faltering economy boost demand for the metal as a protection of wealth. John Paulson, who made $15 billion betting against subprime mortgages, is still the biggest investor in the largest exchange-traded fund backed by bullion.

“In this current macro environment with high risk and uncertainty surrounding the financial markets, gold has boded very well,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “Gold is pricing in the one-notch downgrade as well as a component of lower global GDP growth.”

Gold: Goldman Forecasts

Goldman Sachs Group Inc. (GS) raised its forecasts for gold futures to $1,645 an ounce, $1,730 and $1,860 on a three-month, six-month and 12-month horizon as it expects real U.S. interest rates to stay lower for longer. The previous estimates were $1,565, $1,635 and $1,730, it said in a report.

Gold futures may advance as investors seek bullion over U.S. Treasuries as a haven, according to David Lennox, a resource analyst at Fat Prophets.

“People, having rolled into U.S. Treasuries on Thursday evening, suddenly saw that there’s still a concern with Treasuries and they’ve just gone back to gold,” Lennox said by phone from Sydney. “It’s just that knee-jerk reaction back to the absolute, probably, safe haven and that’s gold.”

The U.S. rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, New York-based S&P said Aug. 5.

Gold: U.S. Ratings

“Participants’ expectations must adjust to the real status of the U.S. rating, which could be the perfect storm for the gold price,” LGT’s Dincer said.

Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.

In India and China, the largest and second-biggest bullion consumers, gold futures climbed to records.

Silver futures for September delivery rose $1.134, or 3 percent, to $39.345 an ounce in New York.

Palladium futures for September delivery fell $9.20, or 1.2 percent, to $732.55 an ounce on the New York Mercantile Exchange. Platinum futures for October delivery climbed $3.90, or 0.2 percent, to $1,723 an ounce on the Nymex.

- Tony C. Dreibus in London and Debarati Roy in New York at Bloomberg.