Gold hits record high as risk aversion resurfaces

LONDON (Reuters) - Gold hit a record dollar high above $1,250 an ounce on Tuesday and new peaks in other currencies as concern over Europe’s economic outlook lifted risk aversion, knocking stock markets lower for a third session.

A gold jewellery shop owner arranges ornaments at a counter in Kolkata May 27, 2010. REUTERS/Parth Sanyal

Fears grew over prospects for a European economic recovery after ratings agency Fitch warned the UK faced a “formidable” challenge in plans to cut government borrowing.

Spot gold rose as high as $1,251.20 an ounce, and was at $1,246.80 an ounce at 1515 GMT against $1,238.05 late on Monday. U.S. gold futures for August delivery hit a record $1,254.50 and was later up $8.40 at $1,249.20 an ounce.

The precious metal, up around 12 percent so far in the latest quarter, is benefiting from fears the euro zone’s sovereign debt crisis may spread, weighing on global economic recovery, analysts said.

“The sovereign debt issue is a perfect thing for gold as a safe haven,” said VM Group analyst Matthew Turner.

“It makes investors nervous about the safety of other assets, and raises the chance of both devaluation in some of these countries and inflation across not only the euro zone but the whole world.”

Euro-priced gold also hit a record 1,050.86 euros an ounce, while gold priced in sterling and Swiss francs hit all-time highs of 870.63 pounds an ounce and 1,450.40 francs an ounce respectively.

The euro edged up after tumbling to a four-year low versus the dollar on Tuesday, but gains were slight as the market remained anxious about debt levels in several euro zone countries.

Euro zone sovereign debt worries resurfaced this week after Hungary warned about its deficit last Friday.

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European shares fell, extending a sell-off into a third session amid heightened concerns over sovereign debt after Fitch Ratings said the UK is facing a “formidable” fiscal challenge, while Wall Street was flat in choppy trade.

With the fear factor still dominating the financial markets, gold is set for further gains, analysts said. “Right now it’s too difficult to stand in front of a moving train,” said UBS analyst Edel Tully in a note.


Investment interest in gold held firm, with holdings of the world’s largest gold exchange-traded fund, New York’s SPDR Gold Trust, unchanged on Monday, but high prices weighed on physical demand in the world’s top gold consumer, India.

Premiums for gold bars slipped in Asia on Tuesday after bullion raced toward a lifetime high, while purchases from Indian jewelers slowed to a trickle as the monsoon progressed in the world’s largest consumer.

From a technical perspective, gold’s break higher on Monday has left it well positioned to make new highs, according to analysts who study charts of past price movements to determine the future direction of trade.

“In dollar terms, $1,250 may prove to be near-term resistance, but we ultimately target a run toward long-term channel resistance at $1,374,” said Barclays Capital technical analysts in a note.

“In euro terms, we target $1,118 following the break of $1,013 range highs.”

Silver was bid at $18.36 an ounce against $18.09, platinum

at $1,523 an ounce versus $1,512, and palladium at $437.95 versus $430.

Editing by Keiron Henderson