Gold marched to a record above $1,600 (U.S.) Monday, stretching its rally to an unprecedented eleventh day on fears that U.S. lawmakers could fail to raise the debt ceiling to avert a default.
Gold rallied even as the U.S. dollar strengthened, helping the precious metal hit record highs against the euro and sterling. The precious metal has been on a solid footing since Europe started struggling to put together a second bailout for Greece and contain the euro zone debt crisis.
Bullion has gained 8 per cent in 11 days as President Barack Obama and Congress have failed to reach an agreement to raise the $14.3-trillion borrowing limit with less than three weeks before the Aug. 2 deadline.
Technical charts indicate gold should rise above $1,700 an ounce in the next few months. "What's coming out of these debt talks is that you are seeing a lot of people focusing on the numbers and to understand the ramifications of debt burden on countries," said Robert Lutts, chief investment officer of Cabot Money Management, which manages more than $500-million in assets.
"A move to $2,000 in the next six to nine months is not that crazy in gold," Mr. Lutts said.
Spot gold rose as high as $1,607.01 an ounce and was up 0.7 per cent at $1,603.89 an ounce by 2:20 p.m. ET. It has now set record highs in three out of the last four sessions. It rallied 10 straight days in 1970.
U.S. gold futures for August delivery settled up $12.30 at $1,602.40 an ounce after trading between $1,591.40 and $1,607.90. Volume came to 130,000 lots, sharply lower than turnover during last week's rallies to then-record highs.
While gold has increased over six-fold from just $250 in 2001, the metal remains one of the few commodities which has not surpassed its inflation-adjusted records - with bullion's adjusted all-time high at above $2,300 set in 1980.
The relative strength index for gold rose above 70, often seen as a sign of overextension. Some said that gold's extreme valuation is hindering its ability to rise further and perform as a safe haven.
"If there is a plan put in place for the reduction of the U.S. deficit, gold's going to get knocked hard on that," said Jason Pride, director of investment strategy at Glenmede, a wealth management firm with $20-billion in assets.
Silver soared nearly 4 per cent, topping $40 an ounce for the first time since early May. Silver hit a two-month high of $40.70 and ended up 2.5 per cent at $40.27. Silver has rallied more than 15 per cent in the last two weeks.
Gold rose to record highs across a number of major currencies, namely euro, sterling, the South African rand and the Canadian dollar. With the United States and Europe not yet resolving their debt problems, many investors prefer to own gold than investments denominated in the dollar or the euro. The S&P 500 slipped over 1 per cent and crude oil futures also fell sharply.
With five days until Mr. Obama's deadline for a deal to raise the U.S. debt ceiling, two ratings agencies already have warned of a credit rating downgrade in the event of a U.S. default.
Market watchers fear such a move could send interest rates soaring and erode the U.S. dollar's reserve currency status, which would be a huge boost for gold.
Michael Cuggino, portfolio manager of Permanent Portfolio Funds with $14-billion in assets, however, said that Federal Reserve Chairman Ben Bernanke's comment on possible more market stimulus last week and the euro zone debt fears are lifting gold more than the U.S. debt talks.
Among the platinum group metals, spot platinum was up 1.3 per cent at $1,771 an ounce, while spot palladium was up 2.8 per cent at $792.47 an ounce.