* S&P downgrades US credit outlook to negative from stable
* Investors fret over prospect of Greek debt restructuring
* Gold volatility index rises to four-month high
* Coming up: U.S. March housing starts on Tuesday
(Recasts, updates prices, market activity; adds link to
Insider interview)
By Frank Tang
NEW YORK, April 18 (Reuters) - Gold prices rallied to a
record high $1,497.20 an ounce on Monday after Standard &
Poor's downgraded its credit outlook for the United States and
as investors worried about debt in the euro zone and inflation
in China.
S&P said it might eventually 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 CBOE gold volatility index <.GVZ>, a bullion market
fear gauge, surged to its highest level in four months, up 8
percent for its biggest one-day rise since March 1.
"It's a wake up call that we need to do something in the
U.S. Unfortunately, the political dynamics are unlikely to
dictate that. Gold is going to benefit for an extended period,
meaning that we are not going to resolve those issues," said
Axel Merk, portfolio manager of Merk Hard Currency Fund
<MERKX.O>
Spot gold <XAU=> rose 0.8 percent at $1,495.20 an ounce by
2:52 p.m. EDT (1852 GMT), its fourth session of gains.
U.S. gold futures for June delivery <GCM1> settled up $6.90
an ounce at $1,492.90, with volume approaching a busy 200,000
lots, preliminary Reuters data showed.
Gold rose even as the Reuters/Jefferies CRB index <.CRB>
fell 1 percent, led by a more than 2 percent drop in U.S. crude
futures. Global equity markets <.MIWD00000PUS> also tumbled.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Gold-oil chart graphic: http://link.reuters.com/tat98r
Reuters Insider interview: http://link.reuters.com/qus98r
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
"The U.S. 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.
Gold prices were also underpinned after Atlanta Federal
Reserve President Dennis Lockhart said economic growth may have
been slower than expected early this year. Investors took this
as an indication that the Fed is not likely to rush to scale
back its vast support for the economy. []
Bullion prices have almost doubled since the Fed cut
interest rates to the bone in 2008 to boost economic growth.
DOLLAR RISE, CHINA TIGHTENING
Gold gained support from talk that Greece may be forced to
restructure its debt and on uncertainty over a bailout for
Portugal. []
"There is ongoing concern that the (European) debt problems
haven't been fixed. The negative outlook just undermines the
role of the dollar as a safe-haven currency," said Leo Larkin,
metals equity analyst of Standard & Poor's.
Defying market expectations, the dollar remained broadly
higher as mounting concerns about Greece's fiscal conditions
more than offset S&P's move. []
Larkin, whose work is separate from that of S&P's sovereign
rating unit, said he expected gold to hit a record $1,600 an
ounce by year-end on inflation worries and low real interest
rates.
Gold remained far below its all-time inflation-adjusted
high, estimated at almost $2,500 an ounce, set in 1980, an era
of Cold War tension, oil shocks and hyperinflation. (Graphic:
http://r.reuters.com/ren88r )
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. []
Among other precious metals, silver <XAG=> gained 0.5
percent to $43.21 an ounce, having earlier hit 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 <XPT=> eased 0.2 percent at $1,779.99 an ounce,
while palladium <XPD=> dropped 3.3 percent to $735.22.
Prices at 2:52 p.m. EDT (1852 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCM1> 1492.90 6.90 0.5% 5.0%
US silver <SIK1> 42.956 0.385 0.0% 38.8%
US platinum <PLN1> 1782.80 -12.00 -0.7% 0.3%
US palladium <PAM1> 739.10 -29.00 -3.8% -8.0%
Gold <XAU=> 1495.20 11.45 0.8% 5.3%
Silver <XAG=> 43.21 0.22 0.5% 40.0%
Platinum <XPT=> 1779.99 -2.71 -0.2% 0.7%
Palladium <XPD=> 735.22 -25.33 -3.3% -8.0%
Gold Fix <XAUFIX=> 1493.00 8.50 0.6% 5.9%
Silver Fix <XAGFIX=> 42.79 18.00 0.4% 39.7%
Platinum Fix <XPTFIX=> 1778.00 8.00 0.4% 2.7%
Palladium Fix <XPDFIX=> 749.00 13.00 1.7% -5.3%
(Additional reporting by Wanfeng Zhou in New York and Jan
Harvey in London; Editing by David Gregorio)
