Gold Rises on European-Debt Concerns, Bets Fed Will Add to U.S. Stimulus

Sept. 21 (Bloomberg) -- Gold futures rose as European debt concerns and prospects for more steps by the Federal Reserve to bolster the U.S. economy spurred demand for the precious metal as an alternative investment.

Standard & Poor’s cut Italy’s credit rating yesterday, adding to concern that Europe’s fiscal crisis will raise borrowing costs for countries in the region. Fed officials begin a two-day meeting today and may decide to replace some of the short-term Treasuries in the central bank’s $1.65 trillion portfolio with longer-maturity debt in a bid to lower borrowing costs, according to economists.

“The market realizes how structural the problems in the financial system are,” Scott Gardner, the chief investment officer at Panama-based Verdmont Capital SA, said in an e-mail. “Economic growth concerns are bullish for gold because they suggest a further stimulus response from the developed markets may be forthcoming.”

Gold futures for December delivery gained $30.20, or 1.7 percent, to settle at $1,809.10 an ounce at 1:44 p.m. on the Comex in New York. The metal dropped 2 percent yesterday as the dollar jumped against a basket of major currencies.

The precious metal has gained 27 percent this year, outperforming global equities and Treasuries. The metal reached a record $1,923.70 on Sept. 6.

The U.S. economy will expand 1.5 percent this year, down from the 2.5 percent projected in June, the International Monetary Fund said today.

Stimulus Measures
“The Fed may announce some stimulus measures,” Graham Leighton, a director of metals at Newedge USA LLC in New York, said in a telephone interview. “The long-term bullish story for gold remains intact.”

Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries that have had their credit ratings cut this year. The European Central Bank last month started buying Italian and Spanish government bonds after the region’s debt crisis pushed their yields to euro-era records.

Silver futures for December delivery gained 97.4 cents, or 2.5 percent, to $40.137 an ounce on the Comex. The price dropped 4.1 percent yesterday.

On the New York Mercantile Exchange, platinum futures for October delivery rose $9.90, or 0.6 percent, to close at $1,781.90 an ounce, after slumping 2.3 percent yesterday. Palladium futures for December delivery gained $5.65, or 0.8 percent, to $717.75 an ounce.