Gold price hits all-time high on US debt concerns

The price of gold has risen to a fresh all-time high, and the dollar has hit a four-month yen low, on concerns the US may default on its debt obligations.

The moves came after ratings agency Moody's said it may cut the debt rating of the US, warning there was a "rising possibility" it will default.

To avoid default, US politicians have to agree to raise the country's debt limit by 2 August.

Democrats and Republicans are currently in dispute over how best to do this.
'Shockwaves'

The spot price for gold rose to a record high of $1,589.56 an ounce in early Thursday trading, before easing to $1,584.51.

Gold is seen as the number one haven purchase in times of economic uncertainty, but analysts said its rise was also caused by the fall in the dollar, which makes the precious metal more affordable for holders of other currencies.

Against the Japanese currency the dollar fell to 78.45 yen at one point, its lowest level since March, before recovering to 79.61 yen.

The dollar also declined against the European single currency, down 0.6% to 0.7017 euros. The greenback also fell slightly against the pound, with sterling rising 0.2% to $1.6142.



Ben Bernanke said a default on the US debt would be ''a major crisis''

European share indexes were slightly lower in early trading, with Germany's Dax down 0.3%, and the UK's FTSE 100 losing 0.4%. Japan's Nikkei earlier lost 0.3%.

The Dow Jones index in the US closed up 0.4% on Wednesday, but this was before Moody's issued its warning.

Federal Reserve chairman Ben Bernanke has warned that a default by the US on its debt would cause a "major crisis".

Speaking before Congress on Wednesday, he said it "would send shockwaves through the entire financial system".
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As tough negotiations continue on Capitol Hill about raising the debt limit, President Barack Obama reportedly told a top Republican: "Enough is enough."

Talks between Republicans and Democrats are due to resume on Thursday.

"It's a very political environment right now and that's causing all this volatility," said Elke Schoeppl-Jost, chief investment officer at BEA Union Investment in Hong Kong.

Ms Schoeppl-Jost added that markets were concerned about the prospect of further stimulus spending in the US.

On Wednesday, Mr Bernanke said that this remained a possibility if the US economy worsened.
Chinese concerns

China, the largest holder of US debt, reminded Washington of its need to protect investors.

"We hope the US government adopts responsible policy and measures to ensure the interests of investors," said Foreign Ministry spokesman Hong Lei.

China holds about $1.15tn (£713bn) of US debt.

Chinese government economist Yu Bin, who works for China's Development Research Centre, also expressed concern at the prospect of further stimulus spending by the Federal Reserve.

He said such a move could "have a major impact on China's economy" because it would likely increase global commodity prices, most of which are traded in dollars.