* 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, updates prices, adds link to graphic)
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
record run as investors hedged growing inflation risks and
bought into a broad commodities rally as the dollar slumped.
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), which measures investors' inflation
expectations, 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 turned to gold as a
store of value.
"The U.S. government at this point of time has not
corrected its fiscal imbalance, and the Federal Reserve
continues to maintain exceedingly loose monetary policy, which
has the risk of further debasing the dollar," said Mark
Luschini, chief investment strategist of broker-dealer Janney
Montgomery Scott, which manages $53 billion in client assets.
Gold prices tend to rise with a declining dollar.
Spot gold <XAU=> rose to an all-time high of $1,505.70 an
ounce. It was last up 0.4 percent at $1,500.50 by 3:31 p.m. EDT
(1931 GMT), having risen almost 4 percent over the past eight
days. The metal is set for its 11th successive quarterly gain.
While 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 -- gold has
doubled since the lows of 2008 and risen six-fold since 2001.
Silver <XAG=> also surged above $45 for the first time
since 1980, when the Hunt Brothers of Texas cornered the silver
market.
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.
"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.
The White House and congressional leaders must agree on a
deal on raising the $14.3 trillion cap on borrowing in the next
few weeks or the United States will be at risk of defaulting on
its debt, which would have dire consequences both for the
country and global markets. []
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Gold's gain vs silver http://link.reuters.com/wud29r
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
Outlook for gold on Insider:http://link.reuters.com/wad29r
BarCap outlook on Insider: http://link.reuters.com/vab29r
Breakingviews on gold: []
Technical outlook for gold: []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
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 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
The metal is expected to be underpinned by uncertainty over
how the United States will adjust monetary policy after the
Federal Reserve's $600 billion government bond-buying program
-- known as quantitative easing -- comes to an end in June.
If the S&P eventually cuts its long-term rating on the
United States, it will weigh heavily on the U.S. dollar, often
used as a global reserve currency, and economic stability
throughout the world - a perfect recipe for gold rally.
[]
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, luring more and more
speculators who have begun to view it as a one-way bet.
"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.
Prices at 3:31 p.m. EDT (1931 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCM1> 1498.90 3.80 0.3% 5.5%
US silver <SIK1> 44.461 0.548 0.0% 43.7%
US platinum <PLN1> 1802.80 31.50 1.8% 1.4%
US palladium <PAM1> 758.90 27.80 3.8% -5.5%
Gold <XAU=> 1500.50 6.60 0.4% 5.7%
Silver <XAG=> 45.14 1.25 2.9% 46.4%
Platinum <XPT=> 1797.50 36.00 2.0% 1.7%
Palladium <XPD=> 758.00 31.05 4.3% -5.2%
Gold Fix <XAUFIX=> 1501.00 -4.00 -0.3% 6.4%
Silver Fix <XAGFIX=> 44.79 157.00 3.6% 46.2%
Platinum Fix <XPTFIX=> 1804.00 16.00 0.9% 4.2%
Palladium Fix <XPDFIX=> 759.00 8.00 1.1% -4.0%
(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)
