Gold pauses after hitting records; US debt in focus

SINGAPORE: Spot gold took a breather on Thursday after hitting record highs for two sessions this week, while sentiment remained supported by the deadlocked US debt ceiling talks.

Top Republicans and Democrats worked behind the scenes on Wednesday on a compromise to avert a crippling US default, looking to salvage a last-minute deal from rival debt plans that have little chance of winning broad congressional approval on their own.

With the Aug. 2 deadline just days away, the United States is in increasing danger of losing its top-notch credit rating, even if a deal to avert default is reached, analysts and traders said.

"It looks like a downgrade has been priced in with all the sell-off in the dollar," said a Singapore-based trader. "Gold remains a good trade overall with some people targeting $1,650s or $1,660s."

The dollar remained on the defensive as Washington showed no signs of progress in debt agreement, making dollar-priced gold more appealing to holders of other currencies.

Spot gold was little changed at $1,613.69 an ounce by 0641 GMT, off an all-time high of $1,628 set on Wednesday.

US gold barely moved at $1,614.30.

Adding to the safe-haven demand, Standard & Poor's cut Greece's sovereign credit rating further into junk territory, saying the European Union's proposed debt restructuring would put the country into "selective default".

Technical analysis suggested that a bullish goal at $1,644 has been abandoned and gold could head down towards $1,593, said Reuters analyst Wang Tao.

If Washington reaches a deal on raising the $14.3 trillion debt ceiling, gold could face a pullback with the return of risk appetite.

"Gold is very ignitable at this point -- throw it a spark and it shoots up," said Hou Xinqiang, an analyst at Jinrui Futures in China.

"When we see a result, prices will correct and present a good chance to get into the market."

In Asia's physical gold market, record highs have triggered moderate selling and buying remained muted during the seasonal lull.

Spot silver was flat at $40.21, after reaching $41.42 on Wednesday, its highest since early May, when prices tumbled from a record of $49.51 set on April 28.

Copyright Reuters, 2011