Gold prices have soared to record highs this year on concerns over the euro zone debt crisis, and the metal could be set for another leg higher if the world's biggest economy, the United States, also starts to struggle with its debt repayments.
Gold hit a record $1,575.79 an ounce in May as Ireland and Portugal struggled with unwieldy debt levels and Greece faced fears of default, and it returned to within $20 of that level this week on concerns Italy and Spain could also be affected.
But behind these fears, unease is mounting over the U.S. debt burden. The U.S. Treasury says it will be forced to default on its obligations if Congress does not raise the $14.3 trillion debt ceiling, which caps how much it can borrow, by Aug. 2. Participants say a deal should be in place by July 22.
The prospect of a default is seen as unlikely, but the wrangling over the debt ceiling has highlighted the problems the United States will face in cutting its deficit.
"If the U.S. debt ceiling is not extended in time and the United States were to default even briefly, or if they had to find work-arounds to pay their short-term expenses, that has got to be positive for gold," said David Jollie, an analyst at Mitsui & Co Precious Metals.
(cnbc news)
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