Gold rebounded from its biggest drop in a week in London as concern about Europe's debt crisis spurred demand for the metal as a protection of wealth.
Standard & Poor's on Monday cut Italy's credit rating, adding to concern Europe's debt crisis will raise borrowing costs for countries in the region. Gold, which dropped 1.8 per cent on Monday as the dollar strengthened against six major currencies, reached a record $1,921.15 (Dh7,050) an ounce on September 6.
"Continued concerns over Eurozone sovereign debt are likely to drive gold higher before policymakers are forced to take more effective action," Bjarne Schieldrop, Oslo-based chief commodity analyst at SEB AB, wrote yesterday in a report. "Under current circumstances, a long position in gold is highly recommended."
Immediate-delivery gold gained $10, or 0.6 per cent, to $1,788.68 an ounce by 9:26am in London. Gold for December delivery was 0.7 per cent higher at $1,790.90 on the Comex in New York.
Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries having their credit ratings cut this year. The European Central Bank last month started buying Italian and Spanish government bonds after the region's debt crisis pushed their yields to euro-era records.
Greek Prime Minister George Papandreou's government was expected to hold another call with European Union and International Monetary Fund officials later yesterday in a bid to secure a sixth instalment of rescue funds, amid concern austerity measures demanded are deepening a three-year recession and making it harder for the government to meet its deficit goals.
"There is scope for gold to rally as Europe's problems cannot be settled overnight and Italy's rating downgrade is an example of this," said Zhang Qian, an analyst at Haitong Futures, China's largest brokerage by registered capital.
Federal Reserve officials began a two-day meeting yesterday and may decide to replace some of the short-term Treasuries in the Fed's $1.65-trillion portfolio with longer-maturity debt.
Bullion: 11 years of gains
Bullion is in the 11th year of a bull market, the longest winning streak since at least 1920 in London, as investors seek to diversify away from equities and some currencies. The metal is up 26 per cent this year, outperforming global stocks, commodities and Treasuries.