Gold hits record high on debt fears and chance of more Fed stimulus

by
July 13, 2011

Tom Petruno, The Los Angeles Times

Gold closed at a record high Tuesday, surpassing its previous high set in May, as some investors ran back to the classic haven amid global financial markets’ latest turmoil.

The metal also got a boost as the minutes of the Federal Reserve’s last meeting showed some policymakers were willing to push for a new monetary stimulus program if the economy failed to show significant job growth.

That could mean a resumption of the Fed’s bond-buying program, which critics say has helped fuel inflation, particularly in commodities. Fears of higher inflation often drive more investors to gold as a hedge.

The Fed is “thinking about more free money,” said Frank Lesh, a commodities analyst at FuturePath Trading in Chicago. “The first place it goes is into the markets.”

Gold jumped $13.10 to $1,561.90 an ounce in the regular futures trading session in New York. That topped the old closing high of $1,556.70 on May 2.

The price now is up 9.9% year to date — more than twice the price gain of the Standard & Poor’s 500 stock index — and is on track for its 11th straight annual increase.

Gold continued to rise in after-hours trading Tuesday, reaching $1,570 an ounce by about 1 p.m. PDT, following the release of the Fed meeting minutes and after Ireland’s debt rating was cut to junk status by Moody’s Investors Service.

Gold has risen for six straight sessions, powered in large part by the latest turn in Europe’s debt crisis. The “contagion” from Greece, Portugal and Ireland has spread to Italy and Spain over the last week, driving those countries’ bond yields up sharply, though they eased a bit Tuesday.

The impasse between the White House and Republican leaders on how to cut the budget deficit also is pushing money toward gold, Lesh said.

For anyone looking for excuses to buy the metal, it’s “round up the usual suspects,” he said.

Silver, however, hasn’t gone along for the ride. After rocketing in the first four months of the year as small investors poured into the metal, silver crashed in May, hurt by the futures market’s decision to raise minimum margin requirements, or down payments, on contracts. A weakening global economy also pulled the metal lower on worries about declining industrial demand.

Silver plunged from a peak of $48.58 an ounce April 29 to $33.49 by mid-May. Since then it has mostly traded between $33.50 and $38.50. Near-term futures slipped 6 cents to $35.63 an ounce Tuesday despite gold’s advance.

The boost in silver futures margins “scared away a lot of participants,” said Matt Zeman, a commodities strategist at Kingsview Financial in Chicago.

It also hasn’t helped that people who bought at the peak of the spring silver mania still are down more than 25%. Year to date, however, silver is up 15.3%.

 

 

 

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