GOLD settled at a record high and silver was at 31-year highs as investor demand for safe-haven assets propelled prices after Standard & Poor's put the US economy on negative outlook.
The thinly traded April-delivery gold contract settled at a record $US1492.30 per troy ounce, up 0.5 per cent, or $US7, on the Comex division of the New York Mercantile Exchange.
The most actively traded contract, for June delivery, settled at a record $US1492.90 per troy ounce, up $US6.90 or 0.5 per cent.
Investors flocked to the safety of gold after ratings agency S&P revised its outlook for the US government to "negative" from "stable".
The downgrade accounted for rising debt levels and budget deficits, the ratings agency said, adding "we believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013".
The change in tone spooked traders, sparking a sharp rally in gold futures on renewed concerns about the US economy, with April gold soaring to an intraday record of $US1497.30 while June gold hit $US1,498.60. Investment appetite for gold had eased in recent months as a stream of upbeat economic data ameliorated these concerns.
The downgrade also fanned concerns about the US dollar's future as a reserve currency and a safe haven, with some investors shedding the greenback in favour of gold. The precious metal is widely considered a store of value and an alternative currency, and many investors have been aggressively switching to the hard asset to protect their wealth from currency volatility.
"There's currency volatility and overall uncertainty about paper currencies and it's good for gold," said Frank Lesh, broker and futures analyst with FuturePath Trading.
Silver prices surged to fresh 31-year highs of $US42.940 after the S&P report, as investment demand for a currency alternative and a hedge against economic uncertainty benefited silver.
Silver trades at a vast discount to gold prices, which redoubles its allure to price-conscious investors looking to guard their wealth from market uncertainty.
Silver for April delivery settled up 0.9 per cent, or 39.1 cents, at $US42.957 per troy ounce on the Comex division of the New York Mercantile Exchange. The day's high was well short of the 1980's record intraday price of $US50.360, set January 18, 1980 when the Hunt Brothers of Texas attempted to corner the market.
May-delivery silver, the most actively traded contract, settled at a record $US42.956 per troy ounce, up 0.9 per cent or US38.5 cents, but off its intraday record of $US43.560 per troy ounce.
Precious metals are likely to rally further on renewed safe-haven demand as concerns about European sovereign debt escalate, with gold set to breach the psychologically important $US1500 level in the coming days, analysts said.
Market speculation has intensified that Greece won't meet its debt payment obligations despite help from the European Union and the International Monetary Fund. These worries are redoubled by talk that additional aid won't be provided, sending investors scampering for a safe harbour from rising uncertainty, analysts at Commerzbank said in a note to clients.
"Uncertainty among market players should persist and gold should remain in high demand as a safe haven," Commerzbank said.
Meanwhile, market speculation about other financially weak euro-zone states continues to fan these worries, with many naming Spain as the next likely bailout candidate.
However, some market watchers predict a correction in the coming days as technical traders move to cash in the sharp gains made over the four-day rally.
Technical traders typically consider three consecutive days of gains as a signal to cash in profits, but today’s sharp declines in equity markets are postponing the likely correction.
"The stock market needs to stabilise a little bit, but from a technical standpoint it's an excellent level to see some profit-taking," said Patrick Lafferty, technical analyst with Capital Trading Group at MF Global.
