Gold and Silver Prices Soar

By TATYANA SHUMSKY

NEW YORK—Gold settled at a record high and silver reached fresh 31-year highs on heavy investor demand for safe-haven assets after Standard & Poor's put the U.S. economy on negative outlook.

The thinly traded April delivery gold contract settled at a record $1,492.30 per troy ounce, up 0.5%, or $7, on the Comex division of the New York Mercantile Exchange.

The most actively traded contract, for June delivery, settled at a record $1,492.90 per troy ounce, up $6.90 or 0.5%.

Investors flocked to the safety of gold after the ratings agency revised its outlook for the U.S. government to "negative" from "stable." The downgrade accounted for rising debt levels and budget deficits, the S&P said, adding "we believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013."

Reuters

The change in tone spooked traders, with April gold soaring to an intraday record of $1,497.30 while June gold hit $1,498.60. Investment appetite for gold had eased in recent months as a stream of upbeat economic data ameliorated these concerns.

The downgrade also fanned concerns about the dollar's future as a reserve currency and a safe haven, with investors shedding the greenback in favor of gold. The precious metal is widely considered a store of value and an alternative currency, and many investors have been aggressively switching to the hard asset to protect their wealth from currency volatility.

"There's currency volatility and overall uncertainty about paper currencies and it's good for gold," said Frank Lesh, broker and futures analyst with FuturePath Trading.

Silver prices surged to fresh 31-year highs of $42.940 after the S&P report, on investment demand for a currency alternative and a hedge against economic uncertainty. Silver trades at a vast discount to gold prices, which redoubles its allure to price-conscious investors looking to guard their wealth from market uncertainty.

Silver for April delivery settled up 0.9%, or 39.1 cents, at $42.957 per troy ounce on the Comex division of the New York Mercantile Exchange. The day's high was well short of the 1980's record intraday price of $50.360, set Jan 18, 1980, when the Hunt brothers of Texas attempted to corner the market.

May delivery silver, the most actively traded contract, settled at a record $42.956 per troy ounce, up 0.9% or 38.5 cents, but off its intraday record of $43.560 per troy ounce.

Precious metals are likely to rally further on renewed safe-haven demand as concerns about European sovereign debt escalate, with gold set to breach the psychologically important $1,500 level in the coming days, analysts said.

Market speculation has intensified that Greece won't meet its debt payment obligations despite help from the European Union and the International Monetary Fund. These worries are redoubled by talk that additional aid won't be provided, sending investors scampering for a safe harbor from rising uncertainty, analysts at Commerzbank said in a note to clients.

"Uncertainty among market players should persist and gold should remain in high demand as a safe haven," Commerzbank said.

Meanwhile, market speculation about other financially weak euro-zone states continues to fan these worries, with many naming Spain as the next likely bailout candidate.

Some market watchers predict a correction in the coming days as technical traders move to cash in the sharp gains made over the four-day rally. Technical traders typically consider three consecutive days of gains as a signal to cash in profits, but Monday's sharp declines in equity markets are postponing the likely correction.

"The stock market needs to stabilize a little bit," said Patrick Lafferty, technical analyst with Capital Trading Group at MF Global. "But, from a technical standpoint, it's an excellent level to see some profit-taking.