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Gold, Silver Shine as US Falters

July 28, 2011 by  


By Alix Steel

NEW YORK (TheStreet) — Gold prices were soaring to record highs Wednesday as investors rushed to the safe haven after House Speaker John Boehner’s debt plan hit a brick wall.

Gold for August delivery was adding $9.20 to $1,626 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,626.80 and as low as $1,617 while the spot gold price was rising $7.10 according to Kitco’s gold index. Silver prices were climbing steadily higher as well, up 70 cents to $41.40 an ounce. The U.S. dollar index was adding 0.18% at $73.65 while the euro was shedding 0.22% vs. the dollar.

The House of Representatives had been gearing up to vote on Speaker Boehner’s debt plan in which the debt ceiling would be raised in two tranches based on spending cuts, but the plan hit a snag. The Congressional Budget Office said that his plan to cut $1.2 trillion over 10 years fell almost $400 billion short. This puts the Senate Democrat plan front and center, which also must face Budget Office scrutiny.

Although most experts think that a high gold price does not reflect a U.S. default, uncertainty over an agreement is a green light for investors to buy gold.

David Banister, chief investment strategist at ActiveTradingPartners.com, thinks that gold will hit $1,730 in a few weeks and maybe even soar to $1,800 an ounce. Banister doesn’t think the U.S. will default, however, but that global fiscal issues and negative real interest rates — the interest rate minus inflation — will continue to support high gold prices.

“Any reaction to the downside on gold will be temporary,” argues Banister. “Traders might be unwilling to make a commitment until they see the short term reaction,” explaining why gold hasn’t skyrocketed, “but I would say any short term pullback in gold on successful debt talks I would be a buyer.”

Stan Dash, vice president of applied technical analysis at TradeStation, also sees prices at $1,730. Dash, in measuring rallies since gold’s low in October of 2008, says that gold can typically move 20% in a leg of a bull market. A move to the $1,730 level would be a 17% rise from the May support level of $1,480 an ounce. “You can’t argue with price,” says Dash. “It’s making new highs. It’s still a bull market”

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