Wednesday, April 20, 2011
The Reuters-Jeffries CRB index was on track for its biggest one-day gain in a fortnight as commodity prices rallied.
Spot gold hit a high of $1,505.40 an ounce and was bid at $1,501.10 an ounce at 1403 GMT, against $1,493.90 late in New York on Tuesday. U.S. gold futures for June delivery rose $6.70 an ounce to $1,501.80.
Silver tracked gold higher, extending a stellar performance that has seen the grey metal outperform other precious metals this year. Silver hit a 31-year high at $44.79 an ounce and was later bid at $44.72 against $43.89.
Gold prices are up 5 percent in April and look set to extend gains as the metal's appeal as a haven from risk was boosted by talk that Greece may have to restructure its debt and Standard & Poor's threat to downgrade America's triple-A credit rating.
"Gold has been acting as a currency in its own right, and that is why we are up at $1,500," said Simon Weeks, head of precious metals at the Bank of Nova Scotia. "There is an awful lot of bad news in the price. The S&P comment the other day has given us the final kicker to get up here."
While investors in the United States and Europe are seeing the metal chiefly as a safe store of value and a hedge against currency devaluation, stronger inflation and rising consumer incomes in China and India are also boosting demand there.
"The theme of longer term higher inflation than we have seen in the last 10 years in China is a pretty solid view, so gold is going to be an asset class that is probably going to be more in favor in China than it has been in the past," said Macquarie analyst Hayden Atkins.
China is the world's second-biggest gold consumer behind India, as well as being the biggest producer.
RISING OIL, WEAKER DOLLAR
In the short term, losses in the dollar on Wednesday are supporting the precious metal above $1,500 an ounce. The dollar is usually sold off when risk appetite firms, as reflected in a rise in stock markets on Wednesday.
The dollar slid to its lowest in 15 months against the euro as the single currency was boosted by higher risk appetite and after a bond auction from Spain was well received by investors.
Weakness in the dollar boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies. Gold priced in euros and sterling remained off recent highs on Wednesday.
Oil prices also recovered, rising back toward the multi-year highs they hit earlier this year as unrest in the Middle East and North Africa sparked fears of a supply outage.
Higher oil prices tend to benefit gold, both because they can boost commodities as an asset class and lift interest in gold as a hedge against oil-led inflation.
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The United States has been put on notice that it faces losing its AAA credit rating unless it gets on top of its yawning debt and deficit.
For the first time in history, the credit agency Standard and Poor's has downgraded America's credit outlook from stable to negative, cranking up pressure on a Congress already embroiled in a heated argument over how to rein in spending.
Stocks plunged sharply on Wall Street in the wake of the announcement from Standard and Poor's.
"We've said today that the risk is that the rating would fall exactly one step to AA+," said David Beers, the global head of Sovereign Relations at the ratings agency.
"So this is from our perspective a, saying that there is a risk of a mild deterioration in the US's credit standing."
Douglas Holz Eakin, a former official at the US congressional budget office, says this is more than just a shot over the bows from S and P.
"It's not really surprising that at some point this was going to happen. Analysts and financial market participants have been looking at the federal budget for years, it's a picture that hasn't changed much over time and implicitly, you have to assume that market participants and analysts were assuming some sort of budgetary fix in the future," he said.
"What Standard and Poor's said today is, you know, it might not happen and certainly if it doesn't happen we have a financial disaster for the Government and an economic disaster for the US."
S and P says it has little confidence that Congress can manage to come up with a plan to reduce the deficit before next year's elections.
"Right now it's the gulf between the parties that we think is going to be very difficult to bridge, not only in the next couple of months, but possibly in the next few years," Mr Beers added.
Coming amid multiple battles on Capitol Hill over how to deal with a swelling $14 trillion debt that both sides of politics agree is unsustainable, the credit warning plays into an increasing fixation with cutting spending.
However, the top White House economist Austan Goolsbee said S and P had made a "political judgement" that should not be taken too seriously.
Nevertheless, the credit warning dominated a White House press briefing held by spokesman Jay Carney.
"We believe the process will outperform S and P's expectations on the political side of this, which, you know, we obviously have a certain amount of experience here, just in these last two plus years and dealing with Congress and in the last several months in dealing with a divided Congress and still getting things done," Mr Carney argued.
"There is a way because the American people demand it."
Just last week a congressional report blamed ratings agencies for triggering the financial crisis by cutting the inflated ratings they had applied to complex mortgage-backed securities.
A rival ratings agency, Moody's, has said it views the direction of US fiscal policy as "credit positive".
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Iran declines to confirm report that Ali Akbar Sibuyeh has been appointed ambassador; Iran-Egypt ties have been warming since Mubarak was toppled in popular uprising.
Iran has appointed an ambassador to Egypt for the first time in 30 years as diplomatic relations are re-established following the fall of President Hosni Mubarak, Iran's Press TV reported on Tuesday.
Ties between the countries -- among the largest and most influential in the Middle East -- were severed in 1980 following Iran's Islamic revolution and Egypt's recognition of Israel.
Cairo has long been an ally of the United States and Israel but since Mubarak was toppled by a popular uprising there have been signs of warming between mainly Sunni Muslim Egypt and predominantly Shi'ite Iran.
Press TV named Iran's ambassador as Ali Akbar Sibuyeh, a career diplomat who is the son of a senior cleric.
Iran declined to confirm the report.
"The news regarding the appointment of an ambassador is guesswork and is hasty," Iranian Foreign Ministry spokesman Ramin Mehmanparast said at his weekly news conference.Haaretz
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United States, Russia, The European Union and the United Nations will endorse Palestinian State in 1967 border
Foreign diplomats warn that if Netanyahu fails to present new peace plan soon, superpowers may officially endorse Palestinian state in 1967 border, with east Jerusalem as its capital
American and European diplomats warned that if Prime MinisterBenjamin Netanyahu fails to present a new peace initiative soon, the Quartet may be compelled to recognize a Palestinian State in the 1967 borders, with east Jerusalem as its capital, the Los Angeles Times reported on Tuesday.
According to the report, Netanyahu is under mounting pressure to unveil a new plan that would jump-start the deadlocked negotiations between Israel and the Palestinians.
If the prime minister does not deliver, the Quartet members – which include the United States, Russia, The European Union and the United Nations – may opt to resume the peace process by officially endorsing a Palestinian state.
"The Israelis are facing a bit of pressure with the way things are proceeding," a western diplomat stationed in Israel told the newspaper. "People are starting to look to the US for some kind of action," he added.
US Secretary of State Hillary Clinton hinted last week that the international community may apply pressure on both sides in order to promote a settlement to the longstanding conflict, which she said was as pressing as ever given recent developments in the Arab world.
"The status quo between Palestinians and Israelis is no more sustainable than the political systems that have crumbled in recent months," Clinton said during a speech at the US-Islamic World Forum in Washington.
Netanyahu, who thanked US President Barack Obama on Sunday for approving the aid budget for the Iron Dome missile defense system, is expected to speak in front of the US Congress next month.
"This is an opportunity to present Israel's political and security principles, following dramatic changes in the region and in light of our national interest to ensure our peaceful and secure future," he said during the latest cabinet meeting.
Analysts have claimed the US postponed a Quartet meeting, which was scheduled to take place in Berlin last week, due to Washington's reservations vis-à-vis the European peace initiative.
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