Information of derivative market: Gold Edges Higher, Debt Dangers Dominate

By: Reuters

Gold prices rose towards $1,620 an ounce on Thursday as a deadline to lift the U.S. debt ceiling approached, stoking concerns of a pontential default by the world's biggest economy, and as worries over euro zone debt simmered.

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Gains in the precious metal were relatively muted, however, as investors took a breather after pushing gold prices to record highs in two of this week's three previous sessions.

Spot gold [XAU 212.35 --- UNCH

] was up 0.3 percent at $1,617.19 an ounce at 0942 GMT.

It hit a record $1,628 an ounce on Wednesday, before correcting sharply later in the day.

"There are still enough uncertainties out there for the market to focus on gold, the Swiss franc and the Japanese yen for security," said Ole Hansen, senior manager at Saxo Bank. "Downside dangers are obviously a solution to the debt ceiling discussions, which could trigger a correction given the amount of "new" money that has been put to work in gold over the last few weeks."

A bill to cut the U.S. deficit faces a nail-bitingly close vote in Congress on Thursday as the top Republican lawmaker, House of Representatives Speaker John Boehner, sought to quell an internal revolt and push his plan forward.

An agreement to cut the deficit is needed before lawmakers will agree to raise the U.S. debt ceiling.

If it does not do so, the world's largest economy will run out of money to pay its bills in less than a week.

The dollar fell 0.1 percent against a basket of six major currencies <.DXY> as Washington showed no signs of progress on the agreement, while the euro also eased due to renewed fears of contagion in Europe.

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Bunds extended recent gains, with investors still in a risk averse mood due to rising chances of a U.S. debt default and increasing doubts that the euro zone debt crisis can be contained.

"As we draw closer to the Treasury's Aug.2 deadline for raising the debt ceiling, there's a rising likelihood of a rushed, short-term fix that essentially kicks the problem further into the future," said UBS in a note.

"This is likely to prompt the market to price in a higher risk of a credit ratings downgrade.

The spread between 10-year German bunds and U.S. 10-year (Treasuries) widened the most in over five months yesterday."

U.S. gold futures [GCCV1 1616.30

1.20 (+0.07%)

] for August delivery were up $2.30 an ounce at $1,617.40.

South African Gold Miners Strike

On the supply side of the market, tens of thousands of South African gold miners will stop work on Thursday, adding to a wave of strikes and potentially costing the gold mining sector $25 million a day in lost output.

The impact of supply outages — particularly short-term ones — on gold is usually fairly soft, given the availability of above-ground stocks of the metal relative to other commodities.

However, the the strike could give more of a lift to platinum prices if it spreads to that sector.

Markets will be closely watching the outcome of talks between the unions andAnglo American Platinum, the world's number one producer of the precious metal.

"(Labour) strike notices have been issued by South Africa's National Union of Mineworker, and about 100,000 gold miners are expected to join a coal strike this weekend in pursuit of higher wages, according to the NUM," said HSBC in a note.

"While we do not expect such action to move the price of gold, the PGMs are susceptible to further gains if a coal strike should threaten power supplies to the mines." Around four in every five ounces of platinum is sourced in South Africa, so supply disruptions in the republic have a significant effect on metals prices.

South African supply outages were a major factor driving platinum to a record $2,290 an ounce in early 2008.

Spot platinum [XPT=X 1788.24

3.64 (+0.2%)

] was up 0.2 percent at $1,787.49, while spot palladium [XPD=X 828.72

6.07 (+0.74%)

] was up 0.6 percent at $827.68.

Silver [XAG= 40.18