Gold Price Steady as U.S. AAA Rating Under Siege

GOLD PRICE NEWS – The gold price oscillated near the $1,612 per ounce level Tuesday while negotiations on Capitol Hill over the debt ceiling remain ongoing.  The price of gold backed off its overnight high of $1,617 per ounce despite weakness in the U.S. dollar.  The euro climbed to 1.45 against the greenback on fears that the U.S. currency will lose its AAA rating if a deal to raise the $14.3 trillion debt ceiling is not reached by the August 2 deadline.

The gold price began the week by rallying to a new all-time high of $1,624 per ounce amid the aforementioned concerns over the U.S. debt ceiling and another downgrade of Greece’s credit rating.  After climbing to a new record high, the price of gold pared its gains and settled up $12.88, or 0.8%, at $1,614.43 per ounce late yesterday.  The SPDR Gold Trust (GLD), the world’s largest gold ETF and a proxy for the gold price, finished higher by $1.22 at $157.34 per share.

Silver advanced alongside the gold price, by $0.22, or 0.6%, to $40.31 per ounce.  Earlier in the day gold’s sister precious metal briefly surpassed the $41 level for the first time since May 3, but relinquished a portion of its gains as the day progressed.  Early Tuesday, TD Securities raised its 2011 and 2012 silver price forecast to $37.24 (from $36.00) and $40.00 (from $30.00), respectively.  On a year-to-date basis, the price of gold is higher by 13.6% and silver has appreciated an even stronger 30.3%.

Yesterday’s strength in the price of gold and silver was unable to sustain a rally in gold and silver shares.  The Philadelphia Gold & Silver Index (XAU) opened higher yesterday alongside precious metals, but were dragged down in concert with the broader markets.  The Dow Jones Industrial Average (DJIA) and S&P 500 Index ended lower by 0.7% and 0.6%%, respectively.

Barrick Gold (ABX) and Goldcorp (GG), the world’s two largest gold companies, fell 1.0% and 1.3%, respectively.  The XAU finished lower by 0.9% at 218.47, but remains higher by 8.6% in July – on pace for its best month since a 17.3% rally in November 2009.  Gold mining stocks traded near unchanged alongside a flat gold price early Tuesday.

Monday’s gold price rally was fueled by the absence of a deal over the weekend to raise the $14.3 trillion U.S. debt ceiling, as well as the potential for a downgrade that would cost the U.S. its AAA credit rating.  While the price of gold is likely remain volatile in the short-term as the debt ceiling discussions intensify, one noted investor contended that the political quarrelling is likely to have a minimal longer-term impact on financial markets.

In an interview with Dow Jones, Jim Rogers was back at it criticizing the economic policies of the U.S. government.  “All this stuff in Washington is basically a sham, a charade…they’re just trying to get publicity,” Rogers claimed.

He went on to predict that although the U.S. will raise the debt ceiling by August 2 and avoid a technical default, “everything is going to get worse…Everyone already knows that the U.S. has lost its AAA status.  Anyone who knows what is going on already knows that the U.S. is now the biggest debtor nation in the history of the world.  It’s only S&P and Moody’s that haven’t figured out what is going on.  The investment world knows that the U.S. is not AAA.”

Rogers – known for his bullish stance on commodities and the gold price over the past decade – did not explicitly discuss the yellow metal in this latest interview.  However, he did note that he remains very bearish on the U.S. dollar over the longer-term, which would likely support the price of gold and other commodities going forward.

UBS, in a note to clients, discussed the implications of the debt ceiling negotiations on the price of gold.  “With little optimism on U.S. debt talks at the moment, the gold price acutely reflects investor nervousness that limited progress will be made before the Aug. 2 deadline,” the firm wrote.  “This nervousness is in many ways justified as the threat of a U.S. ratings downgrade is very real.”