government debt

On Tuesday gold prices remained just below $1,500 an ounce in Europe as the US dollar increased against the euro offsetting the positive impact of rising risk aversion fuelled by uncertainty over plans to roll over Greek debt.

Spot gold was trading at $1,497.45 an ounce at 0923 GMT, against $1,495.54 late in New York on Monday. U.S. gold futures for August delivery GCv1 rose $15.90 an ounce to $1,498.40.

The euro declined as the US dollar appreciated on worries over China’s economy and concerns that the US companies will pull back their dollars earned overseas.

Sheila Bair, a Federal Deposit Insurance Corp Chairman, said that US Congress has to raise the federal debt ceiling to prevent a "calamitous" government debt default.

"But as strongly as I feel about this issue, I feel just as strongly that a technical default on U.S. government obligations would prove to be calamitous," she said.

The Chairman of the US Federal Reserve Ben Bernanke tried to downplay the potential adverse effect of the central bank’s new debt purchase. He said that aggressive monetary policy will not spark unwanted inflation in the future.

The Fed chief explained that the bigger risks facing the country right now are an unemployment rate that remains too high and inflation readings that are uncomfortably low.

The US dollar reached an eight-month low versus the euro on speculation the Federal Reserve will join the Bank of Japan in increasing purchases of government debt.

The Dollar Index fell to levels last seen in January before reports this week forecast to show applications for U.S. unemployment benefits rose and the jobless rate climbed. South Korea’s won rose to a five-month high on prospects that the Asian nation’s yield advantage over U.S. assets will widen.