U.S. debt crisis weighs on markets

North American markets trade lower and gold hits yet another new high as an impasse on raising the U.S. debt ceiling discourages investors.

Gold hits another new high

Traders work on the floor of the New York Stock Exchange last Tuesday. North American markets traded lower Monday on concerns over the U.S. budget impasse. (Mario Tama/Getty)

North American markets traded lower and gold hit yet another new high Monday as an impasse on raising the U.S. debt ceiling discouraged investors.

In Toronto, the S&P/TSX composite index closed down 58.68 points, or 0.4 per cent, at 13,435.95.

In New York, the Dow Jones industrials were lower by 88.36 points, or 0.7 per cent, at 12,592.80. The Nasdaq composite index dropped 16.03 points, or 0.6 per cent, to close at at 2,842.80 while the S&P 500 index was down 7.59 points, or 0.6 per cent, to 1,337.43.

Gold hit an intra-day record high of $1,624.30 US per ounce. The contract for August gave up some of that, but still had a record close, up $10.70 to $1,612.20.

The Canadian dollar was up 0.37 of a cent to 105.73 cents US as traders moved out of the U.S. currency.

September crude on the New York Mercantile Exchange lost 67 cents to $99.20 US a barrel.

S&P/TSX 3-month chart

Talks between U.S. President Barack Obama and House Speaker John Boehner collapsed on Friday and no progress was made on raising the debt limit over the weekend.

Market heavyweight Research In Motion Ltd. also weighed on the TSX as the BlackBerry maker announced big job cuts and management changes. Waterloo, Ont.-based RIM is eliminating 2,000 jobs, or about one-tenth of its workforce, as the company loses market share of its smartphone to Apple Inc.'s iPhone.

RIM stock fell $1.28, or 4.8 per cent, to $25.19. Before Monday's announcement, its stock had tumbled 52 per cent this year.

"There is a long way for them to go to regain a competitive position in the marketplace," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis, adding her company has a sell rating on RIM.

"And their promises and lack of execution over the last year have left us disappointed at their ability to turn this around any time soon."

$2,000 gold predicted

Some analysts said gold could break $2,000 as early as next year. As the U.S. and Europe struggle through debt crises, investors are flocking to gold, which is seen as more secure than currencies.

"There's becoming a lack of confidence in those two major currencies, the U.S. (dollar) and euro currency," said John Kurgan, senior market strategist at commodities specialist firm Lind-Waldock.

"People have been using gold as a store of value, and they've been diversifying out of some of those currencies into gold just as a safe haven of sorts and that's really what's been pressing (the price of gold) of late."

But Craig Wright, the chief economist at Royal Bank, said the bank predicts that countries will be able to manage their debts, and foresees the price of the metal will scale back to pre-record levels.

"Going forward, our hope and our forecast is that some of the things currently scaring markets and supporting gold prices should ease and we should see lower gold prices as we move ahead," he said in an interview.

European government debt worries also focused investor attention as Moody's downgraded Greece's bond ratings by a further three notches. The ratings agency also warned that it is almost inevitable the country will be considered to be in default following last week's new bailout package.

Earlier in Asia, Japan's Nikkei 225 closed down 0.8 per cent while Hong Kong's Hang Seng Index lost 0.7 per cent. China's Shanghai Composite Index slid three per cent.

European markets were weak with London's FTSE 100 index down 0.29 per cent, Frankfurt's DAX was up 0.1 per cent and the Paris CAC 40 fell 0.37 per cent.

With files from The Canadian Press