Gold hit record highs near $1,500 an ounce for a second successive day on Tuesday, with appetite for risk fragile after Standard & Poor's cut its US outlook and eurozone sovereign debt concerns simmered. Prices earlier rose to a record $1,497.86 as the dollar wilted, just above the level they hit the previous day after the S&P announcement hit the markets. They have since slipped back after running into strong resistance at higher levels, however.
Spot gold was bid at $1,492.59 an ounce at 1344 GMT, against $1,495.08 late in New York on Monday. US gold futures for June delivery rose 30 cents to $1,493.30. Afshin Nabavi, head of trading at MKS Finance in Geneva, said gold was being driven by safe-haven buying.
"Gold, silver and (the Swiss franc) are all attracting lots of attention," he said. "Every corner of the world you look at, there is a problem politically or economically." The euro edged higher against the dollar on Tuesday after the previous day's sell-off, but debt problems in the eurozone kept investors wary of the single currency. The CBOE Volatility Index, Wall Street's favourite barometer of investor anxiety known as the VIX, jumped as much as 24.5 percent on Monday after S&P warned about the towering US budget deficit.
Risky assets were hit by a double-whammy on Monday after fears mounted that Greece will have to restructure its debt, maybe as early as this summer, and S&P threatened to cut the United States' AAA credit rating. "Most of the trends out there - whether that's worries about the euro, worries about coming inflation, worries about US debt, Chinese buying seeming relatively strong - suggest the price ought to be going higher," said David Jollie, an analyst at Mitsui Precious Metals. "It seems there is a reasonable appetite still to buy, but if you look at the pace, it has gone up at in the last week. That doesn't seem sustainable," he added.
"It would be a surprise if we don't get to $1,500 an ounce, but it would also be a surprise if we shot through it." Oil prices continued to correct, however, with US crude futures falling by $1 a barrel in early European trade. Strength in crude after unrest across the Middle East and North Africa earlier this year was a key factor driving gains in gold.
Rising crude prices tend to lift gold, which is often seen as a hedge against oil-led inflation. Signs that inflation is becoming a major issue in emerging markets, particularly China, has been identified as another support to the precious metal. Silver also held near the previous session's 31-year high of $43.51 an ounce, last bid at $43.20 an ounce against $43.32 on Monday. Silver has outperformed gold this year, up 40 percent so far against gold's 5 percent rise. The gold:silver ratio slipped to a 28-year low below 35 on Monday. Among other precious metals, platinum was at $1,776.24 an ounce against $1,772.65, while palladium was at $733.99 against $739.93.