Gold prices soared Wednesday, closing in on $1,700 an ounce, as investors rushed into the haven asset on fears that world governments won't be able to spend or grow their way out of debt.
Gold (-GC) for December delivery rose $21.80 to settle at a record $1,666.30 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,675.90 during Wednesday's session, another record, and as low as $1,654.40. The spot gold price was a bit less enthusiastic, adding $6.70, according to Kitco's gold index.
Silver (-SI) settled up $1.66, or more than 4%, to $41.75 an ounce. The U.S. dollar index was down 0.7% at $74.02, while the euro was up 0.8% against the dollar.
Gold prices were popping on worries that global economies are slowing so much that they could face another recession, which would prevent governments from growing their way out of debt.
Typically, to spur growth, central banks would lower interest rates or try to pump money into the system. But rates in the U.S. are already between zero and 0.25%, and a move to inject more money into the system may not survive the political backlash, leaving the Federal Reserve's hands tied. Central banks overseas like the European Central Bank (ECB) and People's Bank of China (PBOC) are actually raising rates to fight inflation, a side effect of monetary easing.
"Recent economic data shows we can't grow our way out of this, because there's no growth," points out Ralph Aldis, a co-manager of U.S. Global Investors' World Precious Minerals Fund (UNWPX). "This does not bode well for the U.S. dollar and other major currencies around the world like the euro. This is why you're seeing gold be treated more and more like a currency."
Although the U.S. avoided any credit downgrade, both Moody's and Standard and Poor's have issued a negative outlook. If fiscal discipline weakens or measures aren't taking to further control spending, or if the economic outlook for the U.S. tanks, then its credit rating might be downgraded.
According to Xinhua, Dagong, a Chinese rating agency, already downgraded the U.S. rating to A from A+ with a negative outlook. The Chinese government is the second-largest holder of U.S. Treasurys, behind only the Fed.
With economies in a bind, investors are rushing into gold as a safe place to stash cash. Gold is also coming into a seasonally strong buying period, with a slew of Indian festivals kicking off in August that tend to ignite the physical gold market because of jewelry purchases.
Mihir Dange, the founder of Arbitrage, says gold seems overbought but "considering what is going on with the economy right now the trend technically is up. . . . If we can stay above $1,650, we are looking at $1,700" an ounce. Dange is buying gold on any kind of price dip. "In these overbought situations that I have seen in the past, it means it can run up another $50-$60 before it gets a full correction."
Gold prices will now take their cue from jobs data. Wednesday's ADP employment report showed that the U.S. private sector added 114,000 jobs in July. But June's positive ADP number was a fake-out ahead of the dismal jobs number from the Labor Department, and investors appear skeptical ahead of Friday’s government report for July. Briefing.com says that the private sector may have added just 75,000 jobs and that the unemployment rate could rise to 9.3%.
Gold mining stocks were rallying Wednesday, while broader equities sputtered. Barrick Gold (ABX) was up 0.9% to $49.03, and Newmont Mining (NEM) was adding 1.7% at $57.06. Goldcorp (GG) was gaining 0.8% to $48.75, andAngloGold Ashanti (AU) was climbing 1.3% to $43.84.
Silver stocks were notching big gains as well, with Silver Wheaton (SLW) surging 2.7% to $38.27 and Silver Standard Resources (SSRI) rallying 0.8% to $28.74.
Gold (-GC) for December delivery rose $21.80 to settle at a record $1,666.30 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,675.90 during Wednesday's session, another record, and as low as $1,654.40. The spot gold price was a bit less enthusiastic, adding $6.70, according to Kitco's gold index.
Silver (-SI) settled up $1.66, or more than 4%, to $41.75 an ounce. The U.S. dollar index was down 0.7% at $74.02, while the euro was up 0.8% against the dollar.
Gold prices were popping on worries that global economies are slowing so much that they could face another recession, which would prevent governments from growing their way out of debt.
"Recent economic data shows we can't grow our way out of this, because there's no growth," points out Ralph Aldis, a co-manager of U.S. Global Investors' World Precious Minerals Fund (UNWPX). "This does not bode well for the U.S. dollar and other major currencies around the world like the euro. This is why you're seeing gold be treated more and more like a currency."
Although the U.S. avoided any credit downgrade, both Moody's and Standard and Poor's have issued a negative outlook. If fiscal discipline weakens or measures aren't taking to further control spending, or if the economic outlook for the U.S. tanks, then its credit rating might be downgraded.
According to Xinhua, Dagong, a Chinese rating agency, already downgraded the U.S. rating to A from A+ with a negative outlook. The Chinese government is the second-largest holder of U.S. Treasurys, behind only the Fed.
With economies in a bind, investors are rushing into gold as a safe place to stash cash. Gold is also coming into a seasonally strong buying period, with a slew of Indian festivals kicking off in August that tend to ignite the physical gold market because of jewelry purchases.
Mihir Dange, the founder of Arbitrage, says gold seems overbought but "considering what is going on with the economy right now the trend technically is up. . . . If we can stay above $1,650, we are looking at $1,700" an ounce. Dange is buying gold on any kind of price dip. "In these overbought situations that I have seen in the past, it means it can run up another $50-$60 before it gets a full correction."
Gold prices will now take their cue from jobs data. Wednesday's ADP employment report showed that the U.S. private sector added 114,000 jobs in July. But June's positive ADP number was a fake-out ahead of the dismal jobs number from the Labor Department, and investors appear skeptical ahead of Friday’s government report for July. Briefing.com says that the private sector may have added just 75,000 jobs and that the unemployment rate could rise to 9.3%.
Gold mining stocks were rallying Wednesday, while broader equities sputtered. Barrick Gold (ABX) was up 0.9% to $49.03, and Newmont Mining (NEM) was adding 1.7% at $57.06. Goldcorp (GG) was gaining 0.8% to $48.75, andAngloGold Ashanti (AU) was climbing 1.3% to $43.84.
Silver stocks were notching big gains as well, with Silver Wheaton (SLW) surging 2.7% to $38.27 and Silver Standard Resources (SSRI) rallying 0.8% to $28.74.
