NEW YORK/LONDON: Gold prices rallied toward record highs near $1,500 an ounce on Monday after Standard & Poor's downgraded its credit outlook for the United States and as investors worried about debt in the eurozone and inflation in China. S&P said it might cut its long-term rating on the United States within two years, prompting investors to buy gold as a hedge against economic uncertainty. The ratings agency cited a risk that policymakers may not reach agreement on a plan to slash the huge federal budget deficit. “The US debt situation got a reality check this morning from the move by S&P,” said John Kilduff, a partner at Again Capital in New York. “Only precious metals will be seen as attractive in the aftermath of the outlook downgrade. The overall economic outlook becomes more opaque with this; equities and energies will be very much under pressure now,” Kilduff said. Spot gold rose as high as $1,497.20 an ounce and was later up 0.5 percent at $1,491.67 an ounce by 11:14 A.M. EDT (1514 GMT). US gold futures for June delivery rose $6.60 an ounce to $1,492.60, with volume already topping a busy 150,000 lots, preliminary Reuters data showed. Gold rose as the Reuters/Jefferies CRB index fell more than 1 percent, led by a near 3 percent drop in US crude futures. Global equity markets also tumbled 2 percent. Dennis Gartman, publisher of the Gartman Letter, said gold should keep going higher unless losses on equities or other assets prompt investors to sell the precious metal to meet margin calls. Gold also gained support from talk that Greece may be forced to restructure its debt and on uncertainty over a bailout for Portugal. “The debt crisis in the euro zone is capping the euro but is also an argument (to buy) gold as a safe haven,” said Peter Fertig, a consultant at Quantitative Commodity Research. “If the debt crisis should calm down, interest rate spreads argue for a stronger euro, which would also be a positive factor for gold. From that perspective, gold appears to be well supported.” China move stokes inflation Gold also got a boost from concerns about inflation in emerging markets. China raised banks' required reserves on Sunday for the fourth time this year, extending the fight against stubbornly high inflation. “It certainly looks as though there are signs that inflation is uncomfortably high within the Asia region,” said RBS analyst Daniel Major. “Gold has a role as a perceived inflation hedge.” Among other precious metals, silver fell 0.8 percent to $42.64 an ounce, bouncing off a 31-year high at $43.51 an ounce. Silver has been the best-performing precious metal so far this year, up 40 percent since January. Platinum eased 0.4 percent at $1,775 an ounce, while palladium dropped 3.2 percent to $736.50.
