Gold climbs as euro zone debt fears spread

By Jan Harvey

LONDON (BestGrowthStock) – Gold hit two-week highs on Tuesday and record peaks in euros and Swiss francs, as ratings downgrades of Portugal and Greece fanned sovereign risk fears in the euro zone, helping the metal shrug off weakness in the euro.

Spot gold hit a peak of $1,163.75 and was bid at $1,161.95 at 1525 GMT, against $1,153.38 late in New York on Monday. It hit record highs in euros at 874.70 euros an ounce and in Swiss francs at 1,254.87 francs.

Standard & Poor’s downgraded Portugal’s ratings on concerns about its ability to deal with high debt levels. Portuguese bond spreads hit euro lifetime highs as investors feared the country was the next weak link in the euro zone after Greece.

“Gold prices are rising on the back of presumably higher sovereign risks in the euro zone after the latest downgrade of Portugal ratings by S&P,” said Commerzbank analyst Eugen Weinberg.

“Gold seems to be defying the traditional pattern – stronger dollar, lower gold prices – over the last weeks, pointing to stronger perception of gold as an alternative currency.”

“As the sovereign risks persist, gold prices may well mark new highs for the year.” Gold’s current 2010 peak is $1,168.70 an ounce.

U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $6.90 to $1,160.90 an ounce.

Concern over sovereign risk in the euro zone, chiefly debt-laden Greece, has helped gold rise nearly 6 percent this year, despite a 7 percent fall in the euro versus the dollar, which would normally weigh on gold.

S&P also issued a deeper cut to its ratings on Greece. Athens is seeking help with its debts from the euro zone and the IMF. Germany said on Monday it is ready to commit funds, but demanded Athens take painful austerity measures.

The spread between Greek and German government bond yields hit its widest in 12 years on Tuesday, showing premiums demanded by investors to hold Greek debt are rising.


The euro slipped 1 percent against the dollar after S&P’s ratings cuts, and as financial markets awaited clarity over talks on financial aid for debt-laden Greece.

Concerns over sovereign risk prompted selling of other commodities, with oil prices falling 1.3 percent toward $83 a barrel and base metals prices declining.

Stock markets also slipped, with European shares dropping sharply and U.S. stocks (Read more about the stock market today. ) also lower.

Investment demand took holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, rose more than 6 tons to a record 1,146.216 tons on Monday, the fund said.

“Concerns that Greece’s debt crisis could spill over to other euro zone countries despite the 45 billion euro rescue package is prompting investors to put their money in safer investment alternatives such as gold,” Commerzbank said.

“As long as there is still a risk of the debt crisis spreading, and the uncertainty that this is bringing to financial markets, gold prices should be well supported.”

Traders are now awaiting the outcome of a two-day monetary policy meeting of the U.S. Federal Open Market Committee, which starts on Tuesday. The Fed is expected to hold interest rates, but will discuss how to unwind its massive stimulus package.

Elsewhere, silver was at $18.15 an ounce against $18.26, platinum at $1,727.50 an ounce against $1,743, and palladium at $556 against $564.50.


(Editing by Amanda Cooper)

Gold climbs as euro zone debt fears spread