Gold futures surged to a record $1,697.70 an ounce on demand for an investment haven as the dollar slumped following Standard & Poor’sdowngrade of the U.S. long-term credit rating from AAA.
Gold futures for December delivery rose $36, or 2.2 percent, to $1,687.80 an ounce at 7:40 a.m. Tokyo time in electronic trading on the Comex in New York after reaching the all-time high.
“Gold will most likely be a sharp recipient of safe- haven flows” following the U.S. rating cut, Edel Tully, a London- based analyst at UBS AG, said in a report. “Our previous one- month forecast of $1,725 is likely to be easily met in the short term.”
U.S. stock futures and crude oil plunged today. Last week, investors dumped equities and most raw materials for the perceived safety of Treasuries, the Swiss franc and gold amid escalating debt concerns in the U.S. and Europe. Before today, the metal climbed 16 percent this year.
“Most likely there will be a quest for physical gold, from both U.S. and European investors,” Tully said in the report “The fear trade, as seen through the purchase of small bars and coins, will intensify as confidence diminishes, not just in the U.S., but fear of contagion to other AAA nations will prompt additional physical buying in European.”
Aussie, Kiwi Fall as U.S. Stock Futures Tumble
Australia’s and New Zealand’s currencies declined against the dollar as U.S. equity futures slumped on concern the world’s largest economy will slow, sapping demand for higher-yielding investments.
The so-called Aussie fell against 14 of its 16 major counterparts afterStandard & Poor’s cut the U.S. long-term credit rating one level to AA+ on Aug. 5. New Zealand’s dollar dropped for the fifth time in six days versus the greenback on concern Asian stocks will extend a global slump in equities.
“People are looking at the global growth scenario, which is not going to be pretty under any path that the U.S. follows after the downgrade,” said Alex Sinton, an Auckland-based senior dealer at ANZ National Bank Ltd. “It is a risk-off day. It’s probably going to have the Aussie dollar under pressure.”
Australia’s dollar dropped to $1.0395 as of 8:25 a.m. in Sydney from $1.0442 in New York on Aug. 5. It fell to 81.30 yen from 81.87 yen. New Zealand’s dollar slid to 83.77 U.S. cents from 84.33 cents. It declined to 65.52 yen from 66.10 yen.
S&P 500 futures expiring in September tumbled 2.4 percent to 1,168.80. Dow Jones Industrial Average futures lost 2.4 percent to 11,133.
“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said.
The Australian dollar is likely to extend last week’s biggest drop in more than a year and may slide to $1 as investors dump higher-yielding assets after S&P cut the U.S.’s credit rating, according to UBS AG.
Investors may benefit by selling the Aussie at $1.0420 and should exit the trade if the currency climbs to $1.0510, wrote Gareth Berry, a strategist at UBS in Singapore, in a note to clients.
G-7 Seeks to Avert Collapse in Confidence
Group of Seven nations sought to head off a collapse in global investor confidence after the U.S. sovereign-rating downgrade and a sell-off in Italian and Spanish debt intensified threats to the world economic recovery.
The G-7 will take “all necessary measures to support financial stability and growth,” the nations’ finance ministers and central bankers said in a statement today. Members will inject liquidity and act against disorderly currency moves as needed, they said.
The European Central Bank indicated separately that it will buy Italian and Spanish bonds and Japan signaled further dollar purchases in a sign of concern that prices are becoming unhooked from fundamentals. Stocks extended last week’s decline, the biggest since 2008, adding to risks for a global rebound burdened by European fiscal cuts and elevated U.S. unemployment.
“It is unclear whether the promise of coordinated efforts to provide liquidity will be enough to avert a panic,” said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago. She said the G-7 “gave a raspberry” to Standard & Poor’s for the U.S. rating cut last week and “basically said its analysis is irrelevant.”
The MSCI Asia Pacific Index slid 0.8 percent at 10:01 a.m. in Tokyo, adding to last week’s 7.8 percent decline. Standard & Poor’s 500 Index futures lost 1.7 percent, following a two-week rout that dragged the gauge down 11 percent and erased its 2011 gain. The dollar reached an all-time low of 74.85 Swiss centimes before trading at 76.20.