Thu Jul 14, 2011 4:32pm EDT
* Gold at record in wake of Moody's warning on U.S. debt * Bernanke says Fed not ready to act yet, weighs on market * U.S. stocks fall, along with oil
(Updates with U.S. stock, gold closing levels) By Caroline Valetkevitch NEW YORK, July 14 (Reuters) - Gold prices hit a record high
on Thursday in the wake of Moody's warning that the U.S.
government may lose its top credit rating, while stocks and oil
prices fell after the Federal Reserve chief dampened hopes of
further economic stimulus. Fed Chairman Ben Bernanke reiterated on Thursday that the
U.S. central bank would be prepared to inject more stimulus
into the system if the U.S. economy worsens, but told a U.S.
Senate committee that the time had not come yet and noted
inflation had picked up since late 2010. For details, see
[ID:nN1E76D0IG] While Bernanke's comments broadly pushed commodities lower,
gold rallied on a safe-haven bid after Moody's warning late
Wednesday, which was the latest jolt to investors who are
already on edge about the spreading debt crisis in the euro
zone. The credit rating agency said it could strip the world's
biggest economy of its coveted AAA credit status on the growing
risk that it could default because Washington has not reached a
deal to raise its $14.3 trillion debt ceiling. For details see
[ID:nLDE76D01W] The U.S. Treasury has warned that after Aug. 2 it will not
have enough money to pay all of the country's bills if a deal
is not reached over cutting the fiscal deficit to allow the
debt ceiling to be raised. Spot gold XAU= touched a record high of $1,594.16, and
was up 0.3 percent at $1,586.11 an ounce. U.S. gold futures
GCQ1 for August delivery settled up $3.80 an ounce. The precious metal posted its ninth straight daily rise,
its longest run of gains since October 2006, notching total
gains for the period of more than 7 percent. "This is more about fear, about the dollar, the debt
troubles in Europe, as well as the possible downgrade of the
U.S. credit rating by Moody's," said Commerzbank analyst Eugen
Weinberg. "For gold, this is (one of) the best times." BERNANKE WEIGHS ON MARKETS U.S. stocks fell after Bernanke backed off hints that
additional near-term stimulus could be on the way, removing a
possible catalyst from a market already facing plenty of
obstacles. Wall Street had snapped a three-day losing streak on
Wednesday after comments by Bernanke, in his first of two days
of testimony before Congress, suggested that the Fed could be
ready to act again to support the economy. "Bernanke has backed off considerably from what might have
been more stimulus, and that made yesterday's rally like eating
sugar for lunch: nothing more than a short burst of energy,"
said Kent Engelke, chief economic strategist at Capitol
Securities Management in Richmond, Virginia. The Fed chairman also renewed his warning that a United
States debt default would be devastating for the U.S. and
global economies. The Fed ended its most recent asset-purchase program in
June. Traders said another round of easing would flood the
financial system with yet more money and encourage investors to
reach for higher-yielding currencies and assets. The Fed's easy money policies since 2008 have helped
bolster stocks. The Standard & Poor's 500 index is up about 95
percent from its March 2009 closing low. Technology stocks led the losses on Wall Street on
Thursday. At the close, the Dow Jones industrial average .DJI was
down 54.49 points, or 0.44 percent, at 12,437.12. The Standard
& Poor's 500 Index .SPX was down 8.85 points, or 0.67
percent, at 1,308.87. The Nasdaq Composite Index .IXIC was
down 34.25 points, or 1.22 percent, at 2,762.67. World stocks as measured by MSCI .MIWD00000PUS were down
0.7 percent while the FTSEurofirst 300 .FTEU3 ended down 0.9
percent. In Asia overnight, Japan's Nikkei .N225 ended down
0.3 percent. In the foreign exchange market, the U.S. dollar was up 0.02
percent against a basket of currencies .DXY. Both the euro
EURCHF=EBS and dollar CHF=EBS at one point hit record lows
against the Swiss currency as investor demand for the
traditional safe haven remained elevated. OIL SLIDES Oil prices dropped in volatile trading following Bernanke's
comments. On the New York Mercantile Exchange, August crude CLQ1
fell $2.36, or 2.41 percent, to settle at $95.69 per barrel,
trading from $94.53 to $98.88. Thursday's slip was the biggest
one-day percentage loss since July 8. ICE Brent August crude LCOQ1 went off the board after
falling 46 cents to settle at $118.32. U.S. Treasuries prices slipped as well, with benchmark
10-year Treasury notes US10YT=TWEB trading 20/32 lower in
price to yield 2.96 percent, up from 2.88 percent on Wednesday
afternoon. "The potential downgrade of U.S. debt caused the market to
sell off a little bit overnight, but given all the headlines
concerning the potential downgrade, the markets are trading
extremely resiliently here, and I would not be surprised if
once we digest this bit of supply we continue to motor toward
lower yields," said Scott Graham, head of government bond
trading at BMO Capital Markets in Chicago.
(Additional reporting by Jeremy Gaunt, Nia Williams, Jon
Harvey and Atul Prakash in London, and Frank Tang, Robert
Gibbons, Ryan Vlastelica in New York; and Andy Sullivan and
Deborah Charles in Washington; Editing by Leslie Adler)
