April, 25, 2011, Los Angeles – Gold bullion prices finished higher for a third consecutive week after gaining 1.51 percent and closing at a new all-time high of $1,508.90 an ounce last week following Standard & Poor’s surprise downgrade of their outlook for U.S. sovereign debt from stable to negative, on Monday. The price of silver gained a record 11.07 percent to close at a 31 year high of $47.74 an ounce for the week as the Gold/Silver ratio dropped to 31.61, its lowest level in 28 years, as silver outperformed gold.
Standard and Poor’s decision to downgrade the country’s AAA debt-rating outlook from stable to negative sparked a record week of precious metals price increases. “Because the U.S. has, relative to its AAA peers, what we consider to be very large budget deficits and rising government indebtedness, and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,” S&P said in a release.
As a possible insight into the future direction of the Federal Reserve, Chairman Ben Bernanke revealed on Monday that the Fed may continue reinvesting the maturing debt into Treasuries following the completion of its $600 billion in bond purchases at the end of June. David Kelly from JPMorgan Funds believes the Fed will continue to keep its balance sheet at current levels by replacing about $17 billion a month in maturing mortgage debt with Treasuries.
The Fed may soon be adding even more pressure to the rapidly depreciating dollar after the FOMC meets this Wednesday if it decides to keep interest rates at their current levels. Fed Chairman Bernanke will be delivering the central bank’s first press conference following the FOMC meeting this week. One of the main drivers of the surge in gold and silver bullion prices has been the accelerating slide of the U.S. dollar as low interest rates, rising inflation fears and the massive sovereign debt combine to further undermine the greenback.
The dollar declined almost 1 percent against a basket of major currencies last week following a similar drop the previous week as the dollar has lost more than 9 percent of its value from a year ago. It was disclosed by the Wall Street Journal last week that Mario Draghi, Italian policy-maker, was a favorite to replace Frenchman Jean-Claude Trichet when his term as European Central Bank president ends in October.
There has been renewed speculation that Greece, now drawing on European Union loans, will default on paying its debts. “[While] it doesn’t have to mean an actual default, I fear that Greece can’t get out of this situation without some kind of restructuring,” said Chancellor Merkel’s economic advisor Lars Feld on Wednesday.
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