Gold May Climb Toward Record Price After Signal on Bond Default by Greece

Gold may climb toward a record in New York on demand for a protection of wealth after European officials signaled Greece may default on government bonds as part of a second bailout.

Luxembourg Prime Minister Jean-Claude Juncker said he couldn’t rule out the “possibility” of a so-called selective default on Greek debt. Germany and France will present an agreement on addressing Greece’s debt crisis at a meeting today. Holdings of the metal in exchange-traded products rose 0.1 percent to a record 2,122.6 metric tons yesterday, data compiled by Bloomberg data show.

While the agreement “raises the chances that a solution will be presented, there is no reason for euphoria,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said in a report. “Several attempts at finding an agreement have already failed. Against this backdrop, gold remains in demand among investors.”

Gold for August delivery rose $2.20, or 0.1 percent, to $1,599.10 an ounce by 8:01 a.m. on the Comex in New York. The metal reached an all-time high $1,610.70 on July 19. Immediate- delivery gold was little changed at $1,598.40 in London after reaching a record $1,610.10 two days ago.

Gold is up 13 percent this year, heading for an 11th straight annual gain, the longest winning streak since at least 1920 in London. The MSCI All-Country World Index of equities gained 2.8 percent in 2011, the Standard & Poor’s GSCI Index of 24 commodities is up 9.9 percent and Treasuries returned 3.5 percent, according to a Bank of America Merrill Lynch index.

Investment Demand

“Investment demand is still very strong as there are still many uncertainties in the global economy,” Dick Poon, precious metals trading manager at Heraeus Ltd., said by phone from Hong Kong. “We see a lot more scrap emerging in the market this week, which has offset some of the investment demand.”

Euro-area government chiefs will convene today for the second time in a month as they aim to break a deadlock over a new Greek rescue. German Chancellor Angela Merkel and French President Nicolas Sarkozy reached an agreement on Greece after seven hours of talks in Berlin and details will be released at today’s summit in Brussels.

Separately, two officials familiar with talks on the rescue for Greece said governments may provide a guarantee on the nation’s debt in the event of a default.

 

Debt Limit

Barack Obama’s administration signaled it may accept a short-term increase in the U.S. debt limit only if it’s combined with a major agreement to cut the deficit. President Obama met with top congressional Democrats as the Aug. 2 deadline for raising the $14.3 trillion debt limit nears.

“As the U.S. and Europe appear to move nearer towards solving their debt problems, gold may face some selling pressure,” said Steven Zhu, operations manager at Yinjian Futures Co. “Until there are clear signs that everything is good in the world, we favor gold as a safety play.”

Silver for September delivery in New York rose 0.8 percent to $39.865 an ounce. Palladium for September delivery gained 0.7 percent to $798.95 an ounce. Platinum for October delivery was up 0.3 percent at $1781.50 an ounce.(Bloomberg)