Gold Surges as US Debt Talks Remain Deadlocked

US politicians remain deadlocked with no deal in sight, Doubts remain about Europes new plan as backlash begins, Moodys downgrades Greece again, Gold prices surge on debt fears, UK house prices, AUD PPI slips back. Our Premium Gold trades from Wednesday have been activated as well as our EUR longs.

The debt ceiling deadlock continued over the weekend with neither Democrats or Republicans prepared to give ground on their respective plans for a rise in the debt ceiling. It now appears that the US is sleepwalking its way to a credit ratings downgrade, with the Republicans pressing ahead with a two tier plan to raise the debt ceiling matched by an equivalent amount of spending cuts over the next 10 years. This would be followed up with further votes on spending reductions further down the line.

Given that Standard and Poors only warned last week that any plans to raise the debt ceiling that werent followed by a serious plan to get the deficit under control, suggests that either politicians arent listening or remain blissfully unaware if the consequences that a downgrade would have.

The US dollar looks increasingly likely to remain under pressure as a result and the resultant effects would likely not be good for the US economy in a week when Q2 GDP is expected to show further evidence of a slow down in the US economy.

Back in Europe German Chancellor Angela Merkel came under fire back in Germany over the weekend as economists and ex Bundesbank officials queued up to have a pop at her over fears that Germanys fiscal sovereignty could be at risk from last weeks deal in Brussels. She wasnt spared either by her ex economic advisor as Bundesbank chief Jens Weidmann weighed in accusing her of exposing Germany to sizeable risks.

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Even though the deal agreed last week by EU leaders has bought the single currency some time, doubts remain about the risks of contagion with the EFSF changes needing ratification from the 27 member countries parliaments. With the court case about the legality of the EU bailouts still waiting to be heard in the German constitutional court there remain many obstacles to this agreement getting implemented.

There is also the fact that for the EFSF to be taken seriously it would need firepower of up to 2trn to be effective, which it currently does not have.

Ratings agency Moodys this morning downgraded Greeces sovereign rating once more, this time to Ca with a developing outlook, citing the likelihood that private creditors will incur substantial economic losses on their holdings of government debt.

UK house prices fell for third month in July and are likely to continue on their recent downward trend, Hometrack says as prices fell 0.1% in July, and 3.9% year on year.

Inflationary pressures appear to be slipping back in Australia after Australian producer prices for the quarter rose at a slower pace of 0.8% from 1.2% the previous month, reinforcing perceptions that interest rates may not need to rise in the near future.

Gold has surged overnight hitting new record highs as US debt fears continue to see safe haven flows pour into John Maynard Keynes barbaric relic