Gold prices shot up to record highs Monday on market concerns about the U.S. sovereign debt crisis destabilizing the world's largest economy, spurring demand for Canadian bonds and currency.

At the same time investors sought to protect their wealth in precious metals and stable economies, oil markets slid as warring U.S. political factions failed to reach an agreement on lifting the country's $14.3-trillion US debt ceiling.

The stalemate between Republican and Democratic parties one week prior to an Aug. 2 deadline raised concerns about a U.S. credit rating downgrade pulling down global energy demand.

Crude oil futures in New York settled 67 cents US lower at $99.20 US per barrel after struggling to breach the $100 mark.

A continued stalemate in Washington could further dampen a price gain on concerns of depressed industrial activity.

"The political circus over the U.S. debt level will probably last until the last hours before Aug. 2," Olivier Jakob of Petromatrix said in a note.

"There are enough demand uncertainties to maintain speculators on the sideline of the oil trade," he concluded.

Gold settled Monday at an all-time high of $1,612.20 US per ounce, having reached a high of $1,624.30 US. at the start of trading.

Nothing is stopping the yellow metal from going even higher if the impasse on a U.S. deficit reduction package isn't resolved next week, say experts.

The drive up in gold, which as nearly tripled in value ince 2009, was a relatively traightforward story of inestor uncertainty in the face f something markets haven't seen before - the possible default on U.S. debt, noted Doug Porter, deputy chief economist of BMO Capital Markets.

"Normally, in times of great uncertainty and market angst, investors will flock to U.S. treasury, but since that's the very asset coming under question, investors are having to look at other so-called safe havens, of which gold tops the list, along with the Swiss franc."

On the bond side, Canadian bonds should also appear as safe havens, he said. However, if Canada's largest trading partner suffers, so will Canadian stocks and the economy.

"The risk to the Canadian dollar is if the damage to the U.S. economy is so deep it affects the commodities prices, then that could swing around and ultimately hit the Canadian dollar," Porter said.

"I tend to think that if the damage is relatively light, the Canadian dollar could actually benefit in a certain environment, but I would be concerned about the risks to the broader economy if this carries on much longer."

The loonie settled Monday at $1.0574 to the U.S. greenback, up from $1.0536 Friday. The U.S. dollar fell to a fourmonth low against the yen and a record low against the Swiss franc.

Canada's political stability and strong central bank place it in a favourable position against the embattled U.S. government, said Patricia Mohr, vice-president of economics for Scotiabank.

"And what that means is that it's very easy to attract foreign investment into Canadian government bonds," Mohr said.

Strong oil prices and government finances have also supported the loonie.

In Calgary, the street trend has moved toward silver from gold, said Don Carlson, general manager of Albern Coins.

"We have had much more activity in silver," he said. "People bringing old silver coins in . . . and we've been having people coming in buying pure silver coins, maple leafs and bars."

On Monday silver was trading around $40.40 US, up 28 cents.

domeara@calgaryherald.com