NEW YORK Gold prices hit a record high on Thursday in the wake of Moody's warning that the U.S. government may lose its top credit rating, while stocks and oil prices fell on comments by Fed Chairman Ben Bernanke.
Stocks reversed early gains after the U.S. central bank chief's comments dampened investor speculation that more economic stimulus may be on the way. Oil prices also declined, while the U.S. dollar edged higher.
Moody's warned late Wednesday that it could strip the world's biggest economy of its loftiest credit status on the growing risk that it could default because Washington has not reached a deal to raise its $14.3 trillion debt ceiling.
The U.S. Treasury has warned that after August 2 it will not have enough money to pay all of the country's bills if a deal is not reached over cutting the fiscal deficit to allow the debt ceiling to be raised.
Spot gold touched a record $1,594.16 an ounce and was up 0.4 percent at $1,588.06. U.S. gold futures for August delivery gained $3.40 an ounce at $1,588.90.
The precious metal is on track for its ninth straight daily rise, its longest run of gains since October 2006. During that period, bullion has risen more than 7 percent.
"This is more about fear, about the dollar, the debt troubles in Europe, as well as the possible downgrade of the U.S. credit rating by Moody's," said Commerzbank analyst Eugen Weinberg. "For gold, this is (one of) the best times."
In the foreign exchange market, the U.S. dollar was up 0.08 percent against a basket of currencies .DXY. Both the euro and dollar at one point hit record lows against the Swiss currency as investor demand for the traditional safe haven remained elevated.
BERNANKE WEIGHS ON MARKETS
Bernanke, in a second day of delivering the Fed's semiannual monetary policy report to the U.S. Congress, repeated his statement that the Fed stood ready to take more action should the economy weaken further. But he also said that inflation was higher now than it was late last year, so the Fed is not ready yet to take action.
The Fed chairman also renewed his warning that a United States debt default would be devastating for the U.S. and global economies.
On Wednesday, stocks had rallied after he suggested further monetary policy stimulus was possible if needed.
The Fed ended its most recent asset-purchase program in June. Traders said another round of easing would flood the financial system with yet more money and encourage investors to reach for higher-yielding currencies and assets.
The Fed's easy money policies since 2008 have helped bolster stocks. The Standard & Poor's 500 index is up about 95 percent from its March 2009 closing low.
Technology stocks led the losses on Wall Street on Thursday. The Dow Jones industrial average .DJI was down 36.40 points, or 0.29 percent, at 12,455.21. The Standard & Poor's 500 Index .SPX was down 6.81 points, or 0.52 percent, at 1,310.91. The Nasdaq Composite Index .IXIC was down 32.25 points, or 1.15 percent, at 2,764.67.
"Bernanke has backed off considerably from what might have been more stimulus, and that made yesterday's rally like eating sugar for lunch: nothing more than a short burst of energy," said Kent Engelke, chief economic strategist at Capitol Securities Management in Richmond, Virginia.
Oil prices dropped in volatile trading following Bernanke's comments.
On the New York Mercantile Exchange, August crude fell $2.36, or 2.41 percent, to settle at $95.69 per barrel, trading from $94.53 to $98.88. Thursday's slip was the biggest one-day percentage loss since July 8.
U.S. Treasuries prices slipped as well, with benchmark 10-year Treasury notes trading 15/32 lower in price to yield 2.94 percent, up from 2.88 percent on Wednesday afternoon.
"The potential downgrade of U.S. debt caused the market to sell off a little bit overnight, but given all the headlines concerning the potential downgrade, the markets are trading extremely resiliently here and I would not be surprised if once we digest this bit of supply we continue to motor towards lower yields," said Scott Graham, head of government bond trading at BMO Capital Markets in Chicago.
(Additional reporting by Jeremy Gaunt, Nia Williams, Jon Harvey and Atul Prakash in London, and Frank Tang, Robert Gibbons, Ryan Vlastelica in New York; and Andy Sullivan and Deborah Charles in Washington; Editing by Chizu Nomiyama)