Gold Futures Hit $1,721.90, New All-Time High

Gold futures extended their gains Monday afternoon, as the COMEX December contract reached another new all-time record high of $1,721.90 per ounce. This level marked a gain of $70.10, or 4.2%.

With today’s rise, the yellow metal is now higher by 6.6% in August and 21.2% year-to-date.

The gains in gold came despite strength in the U.S. Dollar Index (DXY), which remained higher by 0.2% against a basket of foreign currencies this afternoon.

Gold shares rallied on the back of the yellow metal, with the AMEX Gold Bugs Index (HUI) surging 3.7% to 546.60. Notable advancers included AngloGold Ashanti (AU), IAMGOLD (IAG), and Randgold Resources (GOLD) – with gains of 3.3%, 1.9%, and 8.2%, respectively

The Downgrade Will Hurt the Dollar More than Bonds

S&P’s downgrade of the United States’ credit rating to AA+ from AAA will have a much more negative impact on the value of the U.S. dollar than that of U.S. government bonds, according to Jeffrey Gundlach.

The founder of DoubleLine Capital and one of the world’s most respected bond investors, Gundlach discussed the implications of the U.S. downgrade in an interview with CNBC on Monday.

Gundlach argued that the downgrade is actually more of a referendum on the dollar rather than U.S. Treasuries, due to the fact that America’s ability to pay its debt obligations remains a virtual certainty because the dollar remains the world’s reserve currency and the government can continue to print money to fund its obligations.

Therefore, holders of Treasuries should not be concerned that they may not receive interest payments on government bonds. However, the value of those payments is what has essentially declined, given the fact that with more dollars in circulation due to the printing presses, the value of each dollar by definition declines.

While Gundlach did not specifically discuss gold, the implications of a weaker dollar and higher bond prices (lower yields) are unequivocally bullish for the price of the yellow metal. This is the case because in such a scenario, gold is denominated in dollars and the opportunity cost of holding an asset such as gold that does not pay interest has fallen.

Dow Tumbles Over 300 Points, Gold Shines

The broader U.S. equity markets continued to tumble Monday following S&P’s downgrade of the United States’ credit rating, as the Dow Jones Industrial Average (DJIA) plunged over 300 points in morning trading.

As of 10:45am ET, the Dow was lower by 313.30 points, or 2.7%, at 11,131.31. Its intra-day low occurred minutes before that at 11,059.53, a loss of 385.08 points.

While liquidation engulfed Wall Street, gold futures held onto the large majority of their gains. COMEX gold futures, per the December contract, reached a new all-time record high of $1,718.20 per ounce in overnight trading, and remained higher by $49.10, or 3.0%, at $1,700.90 this morning.

Silver futures also advanced, but relinquished a considerable portion of their overnight gains to trade higher by $0.48, or 1.3%, at $38.69 per ounce.

Gains in gold and silver came despite strength in the U.S. Dollar Index, which climbed 0.4% to 74.913 against a basket of foreign currencies