Investors were nervous on the Australian share market after Moody’s Investors Service warned of a possible downgrade in US government debt from its AAA credit rating.

“We’re seeing cautious trade as investors assess the likelihood of a US debt de-rating that may increase the chances of a double-dip recession that would hurt Asian exporters,”Bloomberg quoted Pengana Capital’s Tim Schroeders as saying.

“Moody’s action is a shot over the bows telling US politicians that failure to reach agreement on the debt ceiling would have dire consequences for the economy.”

The benchmark S&P/ASX 200 index dipped 24.1 points to close at 4490.7, while the All Ordinaries Index finished 21.9 points lower at 4561.3.

On the mining front, Rio Tinto reported an increase in iron ore and coking coal production during the second quarter. Iron ore production climbed 12% from a year earlier to 48.9 million tonnes.

However, the news did little to buoy investors with the mining heavyweight finishing today’s session unchanged at $A80.95 after spending the bulk of the session in negative territory.

Rival miner BHP Billiton fell 3c to $43.60.

Gold stocks were standout performers on the bourse today after the precious metal rallied to a record on Moody’s potential downgrade in US government debt.

The gold price soared $US22.40 to $1584.30 an ounce in overnight trade and according to some analysts may surge to $2000/oz in the near future if the US Federal Reserve begins a third round of US debt purchases.

“[The same] factors that have driven gold up in recent days remain firmly intact,”Bloomberg quoted HSBC Securities USA analyst James Steel as saying in a brokers note.

“These include sovereign concerns in the EU, contentious debt-ceiling talks in the US, and general economic uncertainty.”

Newcrest Mining gained A84c to $39.80, Perseus Mining added 13c at $3.05 while Kingsgate Consolidated climbed 17c to $8.33.

In other mining news, mineral sands miner Iluka Resources jumped 59c to close at $17.44 after reporting a boost in its full year production guidance on the back of a strong six month production performance.

Iluka now expects full year production of mineral sands to come in at 1.55 million tonnes compared to a previous guidance in February of 1.4Mt.

Meanwhile, base metals on the London Metal Exchange were trading higher in Asia today.

Copper for three month delivery gained 0.5% to $US9698 per tonne, nickel added 0.4% at $24,080/t and zinc jumped 1.2% to $2390/t.