Money Matters, Simplified.
Gold prices soar as US rating credit dips
by Dipankar Roy - August 9, 2011 - comments
The U.S. stocks fell further on Monday, and investors moved to gold as an alternative investment.
Amid downgrade of the U.S. credit rating by Standard & Poor, gold prices rose to $1,700 an ounce on Monday.
At New York Mercantile Exchange, gold for December delivery soared from $61.4, to $1,713.2 per ounce, the highest closing ever in history. It rose up to $ 1,721.9 during intraday trading.
Bayram Dincer, an analyst at LGT Capital Management in Switzerland, stated, "In this current macro-environment with high risk and uncertainty surrounding the financial markets, gold has boded very well."
"Gold is pricing in the one-notch downgrade as well as a component of lower global GDP growth."
Standard & Poor has downgraded the long-term U.S. rating of AAA to AA+ on Aug. 5. The rating agency blamed the nation’s political system for not being able to address deficit reduction, and described the outlook as “negative”.
Standard & Poor indicated a further downgrade in U.S. rating to AA could happen within two years if the spending reductions stay lower than what has been agreed upon, interest rates rise or "new fiscal pressures" leads to a higher general government debt.
Treasury Secretary Timothy Geithner stated the move as "terrible judgment."
Jump in metal prices
Forecasts for gold futures have been raised to $1,730 in six months and $ 1,860 in a year by Goldman Sachs, from earlier estimates of $1,635 and $1,730 respectively.
Silver prices for September delivery jumped 3.1 percent, to $39.38 per ounce. However, immediate-delivery silver fell 0.4 percent to $38.86 an ounce.
Platinum for October delivery grew 0.3 percent, to $1,723.6 per ounce.
Some analysts even believe that the gold price may reach to $2,000 in the next few weeks.
US rating may fall further – Standard & Poor
Standard & Poor indicated a further downgrade in U.S. rating to AA could happen within two years if the spending reductions stay lower than what has been agreed upon, interest rates rise or "new fiscal pressures" leads to a higher general government debt.
The U.S. stocks fell further on Monday, and investors moved to gold as an alternative investment.
The Dow Jones Industrial Average fell more than 600 points to under 11, 000 for the first time since November 2010 and the Standard & Poor's 500 Index declined 47.41 points, or 4 percent, to 1,151.97.