* Gold rallies to record; inflation fears, debt support
* Dollar, US fiscal instability feared after S&P downgrade
* Strong appetite in inflation-threatened Asian economies
(Recasts, adds comments, updates prices, changes byline,
dateline, previously NEW YORK/LONDON)
By Frank Tang
NEW YORK, April 20 (Reuters) - Gold rallied above $1,500 an
ounce for the first time on Wednesday, extending this week's
run of record highs as investors sought to hedge growing
inflation risks and bought into a broad commodities rally.
Mounting evidence of quickening inflation in major Asian
economies such as China and India were echoed in Latin America
on Wednesday, with Brazilian prices nearing a government
ceiling and Mexico's yearly rate exceeding a key target. The
break-even rates on U.S. Treasury Inflation-Protected
Securities (TIPS) rose for a second day.
A second day of deep losses for the dollar and rallies in
oil and grain markets that fueled further inflation concerns
also buoyed bullion, which once again rose in tandem with
riskier assets like equities as investors shifted their focus
from gold's role as a safe-haven play to its potential as a
store of value.
"People are buying any kind of risk assets almost without
discretion across the commodity complex, and gold and silver
are part of them," said Mark Luschini, chief investment
strategist of broker-dealer Janney Montgomery Scott, which
manages $53 billion in client assets.
Spot gold <XAU=> rose to an all-time high of $1,505.70 an
ounce. It was up 0.3 percent at $1,498.54 by 1:53 p.m. EDT
(1753 GMT), having risen almost 4 percent over the past eight
days. The metal is set for its 11th successive quarterly gain.
Silver <XAG=> also surged above $45 for the first time
since 1980.
Gold has notched new records for four consecutive days,
aided in large part by Monday's threat of a downgrade to the
United States' triple-A credit rating and lingering euro zone
debt worries that have depressed the dollar.
"This is just a continuation of a longer-term move being
driven by worldwide monetary policies and specifically here in
the United States," said Michael Cuggino, portfolio manager of
Permanent Portfolio Funds with $12.5 billion in mutual fund
assets.
"Is the U.S. debt ceiling going to be raised? If the debt
ceiling is not raised, what happens to the U.S. debt when it
matures?" Cuggino asked.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Top holders of gold: http://link.reuters.com/hab29r
Inflation adjusted gold: http://link.reuters.com/ren88r
Gold in USD, AUD and CAD: http://link.reuters.com/seb29r
Gold prices, SPDR holdings: http://link.reuters.com/peb29r
BarCap outlook on Insider: http://link.reuters.com/vab29r
Breakingviews on gold: []
Technical outlook for gold: []
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INFLATION PRESSURE CREEPING UP
Signs of simmering inflation across the world underpin
gold. The break-even rates on the expected new five-year U.S.
TIPS, which measures investors' inflation expectations, rose
for a second day to 2.36 percent, roughly 1 basis point higher
than late Tuesday. []
In Brazil, annual inflation sped dangerously near a
government ceiling in the month to mid-April, while Mexico
yearly inflation rate climbed above policymakers' target rate
of 3.0 percent as investors prepare for higher borrowing costs
early next year. [] []
Gold buying in the Asian countries is being fueled by
rising consumer incomes and higher inflation. Both China and
India reported higher than expected inflation last week.
[]
While gold investors in Western markets have been motivated
chiefly by risk aversion in recent years, the precious metal is
a much more deeply established asset in Asia, being bought in
the form of bullion bars and coins. India and China are by far
the world's biggest bullion consumers.
DOLLAR, CREDIT RATING IN FOCUS
With the U.S. currency in particular seen as a key driver
of gold prices, uncertainty over how the United States will
adjust monetary policy -- after its second round of
quantitative easing comes to an end in June -- is set to keep
the metal underpinned.
Standard & Poor's said on Monday it might cut its long-term
rating on the United States within two years, unless Washington
can rein in its budget deficit. []
Such a move by the S&P will heavily pressure the dollar,
adversely affecting the currency market and economic stability
throughout the world - a perfect recipe for gold rally.
[]
"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.
Gold has long been seen as the ultimate haven from risk.
During the financial crisis that rattled markets in 2009 and
2010 it was heavily bought on that basis, but its rally has
since taken on a momentum of its own.
While gold prices are well below their inflation adjusted
highs of more than $2,200 struck in 1980 -- when bullion prices
spiked in response to the Soviet invasion of Afghanistan --
they have risen six-fold from just $250 an ounce in 2001.
(Additional reporting by Richard Leong in New York, Nick
Trevethan, Lewa Pardomuan and Rujun Shen in Singapore and
Chikako Mogi in Tokyo; editing by James Jukwey and Lisa
Shumaker)
