NEW YORK (Reuters) - Gold prices rose to their highest level this year on Friday, above $1,160 an ounce, as a downgrade of Greece’s debt renewed fears over the euro zone’s financial stability, prompting a flight to safer investments.
The metal ended the week about 3 percent higher, which marked the biggest gain since the week of January 10.
Rising investment demand also underpinned the market, as holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust -- often referred to by its GLD stock symbol -- rose to a record of more than 1,100 tonnes.
Jason Toussaint, managing director, investment of GLD’s sponsor, World Gold Trust Services, a unit of industry-funded World Gold Council, said gold is increasingly being used as a long-term portfolio asset, particularly among institutional investors, such as pension funds.
“Investors are understanding that the repercussions of the global crisis are far from over,” he said. “It does point people to focus more on wealth preservation and downside risk protection, and gold is of course a useful tool to address those concerns.”
Spot gold peaked at a four-month high at $1,164.35 an ounce, the firmest since December 8. It was at $1,159.55 an ounce at 2:46 p.m. EDT, against $1,150.15 late in New York on Thursday.
June gold futures settled up $9 at $1,161.90 an ounce on the COMEX division of the New York Mercantile Exchange.
Gold investors took heart on a euro rally after a European Union source said euro zone leaders had reached a deal on terms of a possible emergency loan to help Greece manage a worsening debt crisis.
Potential currency volatility also increases bullion’s appeal. In addition to a choppy euro, New York Times also reported this week that China was close to announcing a shift in currency policy, a sign that Beijing could let the value of the yuan rise.
Gold has benefited from a flight to hard assets amid persistent concerns over the fiscal health of debt-laden Greece and other smaller euro zone economies such as Portugal, Italy and Ireland, helping it shrug off dollar strength this week.
Fitch Ratings on Friday cut Greece’s credit ratings by two notches and signaled further downgrades are possible, citing the intensification of fiscal challenges in the debt-ridden country.
On charts, Adam Hewison, president of MarketClub.com, said gold must rise above the $1,160 area or risk retreating. Rallies in the past several months were met with heavy resistance at the $1,160 level, Hewison said.
Investment interest in the precious metal has grown as inflation and sovereign debt fears persist. Barclays Capital said holdings of the 18 gold-backed exchange-traded products it tracks set record highs on Thursday.
New York-listed GLD also increased its holdings by nearly 10 tonnes to a record 1,140.433 tonnes on Thursday, its biggest one-day climb since September.
Other precious metals also climbed, with silver rising with gold to $18.41 an ounce, the loftiest price since January 20. It was last at $18.35 an ounce against $18.04 on Thursday.
Platinum traded near its highest level since August 2008. It was last at $1,722 an ounce, versus $1,711.50 on Thursday, while palladium also neared a two-year high, and was last at $510.50, versus $501.50 a day earlier.
Additional reporting by Jan Harvey in London; Editing by Walter Bagley