Gold at 4-week high on dollar, Dagong’s US downgrade

Gold jumped the most in four weeks in New York after Dagong Global Credit Rating Co cut its credit rating for the US and on speculation the Federal Reserve will postpone slowing stimulus. Silver rallied.

By (Bloomberg)

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Published: Fri 18 Oct 2013, 10:09 PM

Last updated: Sat 4 Apr 2015, 7:54 AM

Congress voted on Wednesday to raise the US debt limit, ending a government shutdown that began October 1 that has taken $24 billion out of the economy. Dagong cut the local and foreign currency credit ratings of the US on Thursday to “A-” from “A”.

Gold is set for the first annual drop in 13 years as some investors lost faith in the metal as a store of value and on speculation the Fed will slow debt purchases. Policy makers unexpectedly refrained from curbing bond buying at its September 17-18 meeting. The Bloomberg US Dollar Index slumped to the lowest since February as BlackRock and Pacific Investment Management Co said the Fed will maintain stimulus.

“There was a knee-jerk reaction to the Chinese downgrading,” said David Wilson, an analyst at Citigroup in London, which estimated about 10 million ounces of gold and 16 million ounces of silver traded after the report. “When the ultimate worry is about the dollar, maybe you go to gold.”

Bullion for December delivery gained as much as 3 per cent to $1,320.50 an ounce on the Comex in New York, the biggest gain for a most active contract since September 19. It was recently at $1,316.80. Futures trading volume was 77 per cent above average for the past 100 days for this time of day, data compiled by Bloomberg showed. Gold for immediate delivery climbed as much as 3 per cent to $1,321.38 in London.

Gold rose 70 per cent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system, increasing concern about currency debasement and inflation.

“I still think the bigger issue of tapering is still there although we say it’s off the table for the time being,” said Wilson.

Bullion is 32 per cent below the record $1,923.70 set in September 2011. Gold will drop in each of the next four quarters and reach a four-year low as reduced US stimulus in response to faster economic growth curbs demand for bullion as a haven, the most accurate forecasters said.

The metal will decline to an average of $1,175 an ounce in the third quarter next year, or 11 per cent less than now, according to the median of estimates from the 10 most-accurate precious metals analysts tracked by Bloomberg over the past two years. Prices were last at that level in 2010.

Gold holdings in exchange-traded products dropped for a seventh day to about 1,901 metric tons as of on Wednesday, the lowest since May 2010. About $61 billion was erased from the value of gold-backed funds this year.

Silver for delivery in December advanced as much as 3.8 per cent to $22.18 an ounce in New York and last traded at $21.85. Palladium for delivery the same month rose 1.5 per cent to $724.10 an ounce. Platinum for January delivery gained 1.8 per cent to $1,423.50 an ounce.

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