old Tops $1,700 for First Time as U.S. Rating Cut Boosts Demand for Haven

Gold climbed above $1,700 an ounce for the first time after Standard & Poor’s cut the top U.S. credit rating, fueling a slump in equities and the dollar amid concern that the global economy is slowing.

Gold futures for December delivery jumped 3.1 percent to a record $1,702.70 an ounce on the Comex in New York and traded at $1,701.90 at 2:07 p.m. in Melbourne. Silver futures climbed as much as 5.7 percent. Spot gold soared 2.2 percent to $1,700.22 an ounce, also a record.

Futures have surged 20 percent in 2011, gaining for an 11th year, as the sovereign debt crisis and a faltering economy boost haven demand. While George Soros sold most of his gold in the first quarter, John Paulson, who made $15 billion betting against subprime mortgages, is still the biggest investor in the largest exchange-traded fund backed by bullion. Goldman Sachs Group Inc. (GS) raised its price forecasts in a report released today.

“There’s just a pessimism or nervousness that’s associated with economies and currencies of these major nations,” Gavin Wendt, director at Sydney-based Mine Life Pty Ltd., said by phone. “At a time when investors are nervous of currencies, they’re nervous of equities, they’re nervous of everything, the only place for them to park their money is gold.”

S&P cut the long-term rating one level to AA+ from AAA on Aug. 5 while keeping the outlook at “negative,” criticizing the nation’s political system for failing to adequately addressdeficit reduction. Equities sank today, extending the market’s slump, as the dollar and oil slid.

Equity Slump

About $5.4 trillion in global equity value has been erased since July 26, according to Bloomberg data, after Europe’s debt crisis worsened, reports on U.S. manufacturing and consumer spending showed the world’s largest economy was slowing and a political impasse over the budget deficit brought the American government to the brink of default.

The S&P 500 slumped 7.2 percent last week for its worst plunge since November 2008, during the final four months of thebear market that wiped out 57 percent of the index. Still, stronger-than-forecast government data on employment growth sparked a 1.5 percent rebound in the index on Aug. 5 before the rally faded as speculation of the reduction in the U.S. rating swirled through the market.

“It’s not just one of the safe havens, it’s the safe haven,” Wendt said, referring to gold. “Typically, in times of stress it would be the U.S. dollar and probably gold but with these circumstances, it’s really putting a line through the U.S. dollar.”

Goldman, Dollar

Goldman Sachs Group Inc. raised its futures forecasts to $1,645 an ounce, $1,730 an ounce and $1,860 an ounce on a three-month, six-month and 12-month horizon as it expects real U.S.interest rates to stay lower for longer. The previous estimates were $1,565, $1,635 and $1,730 an ounce, it said in a report.

“We continue to recommend long-trading positions in gold,”the bank said.

The dollar dropped to a record low versus the Swiss franc and slid for a second day against the yen. The dollar traded at 76 centimes at 2:12 p.m. in Melbourne from 76.74 in New York on Aug. 5. The U.S. currency weakened to 78.02 yen from 78.40.

Gold may advance as investors seek gold over U.S. Treasuries as a haven, according to David Lennox, a resource analyst at Fat Prophets.

“People, having rolled into U.S. Treasuries on Thursday evening, suddenly saw that there’s still a concern with Treasuries and they’ve just gone back to gold,” Lennox said by phone from Sydney. “It’s just that kneejerk reaction back to the absolute, probably, safe haven and that’s gold.”

Treasury Yields

Yields on 10-year notes dropped 24 basis points last week or 0.24 percentage point, to 2.56 percent after falling as low as 2.33 percent on Aug. 5, according to Bloomberg Bond Trader prices amid signs of stalled economic growth and a widening sovereign-debt crisis.

The U.S. rating may be cut to AA within two years if spending reductions are lower than agreed to, interest rates rise or “new fiscal pressures” result in higher general government debt, New York-based S&P said Aug. 5.

Lawmakers agreed on Aug. 2 to raise the nation’s $14.3 trillion debt ceiling and put in place a plan to enforce $2.4 trillion in spending reductions over the next 10 years, less than the $4 trillion S&P had said it preferred.

Silver for September delivery surged as much as 5.7 percent to $40.40 an ounce on the Comex and traded at $40.235. The metal for immediate delivery rose 4.8 percent to $40.2025.

Palladium for September delivery dropped 2 percent to $727.25 an ounce after falling as much as 3.9 percent in New York. Platinum for October delivery gained 0.2 percent to $1,723.2 an ounce.

To contact the reporter for this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net