Gold, silver rebound after Moody’s says U.S. may face downgrade

Gold and silver futures rebounded after Moody’s Investors Service said U.S. policy makers must address debt woes to avoid a credit-rating downgrade this year, boosting the appeal of the metals as a haven.

“More needs to be done on the policy front to address this rising debt ratio,” said Steven Hess, a senior vice president at New York-based Moody’s. The ratio of debt to gross domestic product will increase in the long term, according to the Congressional Budget Office. Earlier, gold fell as much as 2.1%, while silver plunged 9.4%.

“The Moody’s headline seems to have brought buyers to precious metals,” Dave Lutz, the head of exchange-traded fund trading and strategy at Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “There was also massive short- covering after prices started rising” as traders unwound bets on a slump, he said.

Gold futures for June delivery gained 1.4% to settle at $1,384.10 an ounce at 1:43 p.m. on the Comex in New York. Earlier, the price touched $1,336.30, the lowest for a most- active contract since April 18. The metal dropped in the previous session sessions, the longest slump in four years.

On Aug. 8, 2011, gold rose 3.7% to a record at the time after Standard & Poor’s cut the U.S. credit rating that month.

Holdings in exchange-trade products backed by the precious metal surged by $1.7 billion in 10 minutes today as futures rallied. Assets at 2,198.3 metric tons on May 17 were the lowest since July 2011.

Mideast Tensions

Escalating tensions in the Middle East, a drop by the dollar against major currencies and “barging hunting” boosted gold and silver, David Meger, the director of metal trading at Vision Financial Markets in Chicago, said in a telephone interview.

Silver futures for July delivery advanced 1% to close at $22.582 an ounce on the Comex. Earlier, the price touched $20.25, the lowest since Sept. 14, 2010. Trading was 70% higher than the 100-day average, according to data compiled by Bloomberg.

Electronic trading in the July contract, the most-active, was halted four times in 20-second increments between 5:07 p.m. and 5:10 p.m. Chicago time yesterday after prices “sold off sharply,” Damon Leavell, a spokesman for CME Group Inc.’s Comex, said today in an e-mail.

This year, silver has slumped 25% and gold dropped 17% this year as some investors have lost faith in precious metals as a store of value amid improving economic growth, low inflation and the rally in equities.

On the New York Mercantile Exchange, palladium futures for June delivery rose 1.4% to $750.75 an ounce. Earlier, the price reached $754.95, the highest since April 3. Trading more than doubled compared with the 100-day average.

Platinum futures for July delivery advanced 1.1% to $1,484.60 an ounce.

Bloomberg News

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