Gold prices rose to record highs above $1,625 on Wednesday, with silver and palladium also rallying, as concerns over the prospect of a US default prompted investors to buy precious metals as a haven from risk.
Bitterly divided Republicans and Democrats are scrambling to find common ground with less than a week before the government hits its borrowing limit, with chances of a quick resolution receding after a vote on a deficit plan by Republican Speaker John Boehner was pushed back to Thursday from Wednesday.
Failure to lift the debt ceiling by August 2 could trigger a debt default, while a budget plan that flinches from hefty cuts in the deficit could result in a downgrade of the country's top-notch credit rating, analysts said. Spot gold hit a fresh record high of $1,628 an ounce and was up 0.3 percent at $1,623.36 by 1411 GMT.
"There is not only uncertainty about a possible downgrade (for the US) but a possible default if the debt ceiling is not increased. That is reflected in gold prices and people are positioning themselves for a worst-case scenario," said Georgette Boele, head of forex and commodities research at ABN Amro. Bullion has gained more than 8 percent in July and has hit six all-time highs in the past ten sessions, as US lawmakers were locked in a stand-off over duelling debt plans that offered little prospect for compromise.
"If there isn't a last minute compromise (in the US debt talks) then the situation will get more and more critical. Gold is one of the alternatives to US treasuries and therefore there is further upside potential," said Peter Fertig, a metals consultant at Quantitative Commodity Research. "There is enough uncertainty in both Europe and the US, and concerns about increasing inflation to keep investment demand for gold reasonably well supported," said Daniel Major, an analyst at RBS.
US gold futures for August delivery were up $9.00 an ounce at $1,625.80. Other precious metals rallied on gold's coattails, with silver printing a new 2-1/2 month high at $41.42 an ounce, before later stabilising at $41.12 an ounce. Palladium meanwhile rose to its highest since early February after advancing 3.6 percent on Tuesday, its biggest one-day gain since late April. "Platinum group metals staged an aggressive rally into yesterday's close," said UBS in a note. "The platinum:palladium ratio trade has become evident again, with funds liquidating platinum and buying palladium." Spot platinum was up 0.7 percent at $1,811.74 an ounce, while spot palladium was up 1.1 percent at $840.97 an ounce.
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