Analysts have warned against too much optimism, saying investors turn to the metal when they are worried about the dollar.
Gold jumped the most in four weeks in London after China's Dagong Global Credit Rating cut its credit rating for the United States and on speculation that the Federal Reserve will postpone slowing stimulus. Silver rallied.
Congress voted on Thursday 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 United States Federal Reserve will slow debt purchases. Policy makers unexpectedly refrained from curbing bond buying at its September 17 to& 18 meeting. The Bloomberg US Dollar Index slumped to the lowest since February as BlackRock and Pacific Investment Management said the Federal Reserve 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."
Gold for immediate delivery climbed as much as 3% to $1 321.38 an ounce, the most since September 18. It was at $1 306.97 in London just before lunch. Bullion for December delivery gained 1.8% to $1 305.70 an ounce on the Comex in New York. Futures trading volume was 77% above average for the past 100 days for this time of day, data compiled by Bloomberg showed.
President Barack Obama signed into law a measure ending the government shutdown and extending the nation’s borrowing authority until early next year. Congress produced the accord a day after Fitch Ratings said it may cut the United States AAA credit grade, citing the government’s inability to increase the ceiling in a timely manner.
Gold rose 70% 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% below the record $1 921.15 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 10% 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 tons as of Wednesday, the lowest since May 2010. About $62-billion was erased from the value of gold-backed funds this year.
Silver for immediate delivery advanced as much as 3.6% to $22.1713 an ounce in London and last traded at $21.762. Palladium was little changed at $718.70 an ounce. Platinum rose 1.1% to $1 414.65 an ounce. – Bloomberg