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Gold Rises on Bets Fed’s Stimulus Plan to Erode Dollar’s Value

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Nov. 2 (Bloomberg) -- Gold prices rose for the third time in four sessions on speculation that the Federal Reserve will boost stimulus measures to spur the U.S. economy, undercutting the dollar and lifting demand for precious metals.

The Fed probably will announce a plan tomorrow to buy at least $500 billion of long-term securities, according to a Bloomberg News survey of economists. The dollar has slumped 7 percent against a six-currency basket since Sept. 1, and gold has jumped 8.7 percent on bets that the second round of monetary easing will erode the value of the greenback.

“Gold is poised to move higher on the weaker dollar,” said Frank Lesh, a trader at FuturePath Trading in Chicago. “The dollar is gold’s main driver, and how much and how fast it moves lower depends on what the Fed says.”

Gold futures for December delivery climbed $6.30, or 0.5 percent, to settle at $1,356.90 an ounce at 1:42 p.m. on the Comex in New York. The metal has surged 24 percent this year, reaching a record $1,388.10 on Oct. 14.

“The whole world is expecting a substantial amount of quantitative easing from the Fed,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago. “If it’s just talk, then gold is mispriced.”

The U.S. central bank has kept its target interest rate at zero percent to 0.25 percent since December 2008, making gold more attractive than stocks and bonds. The metal doesn’t pay dividends or interest and has added costs for storage and insurance.

Australia Lifts Rates

Gold in Australian dollars fell after the nation’s central bank unexpectedly raised interest rates. In India, the central bank boosted borrowing costs for the sixth time this year.

“Rising interest rates should be bad for gold, but they’re not perceived to be widespread enough to impact” prices in dollar terms, said Jonathan Spall, a product manager for precious metals at Barclays Capital in London. “A number of people are now saying quantitative easing in many countries will never end.”

Silver futures for December delivery rose 28.4 cents, or 1.2 percent, to $24.836 an ounce on the Comex. The price has gained 47 percent this year.

Platinum futures for January delivery climbed $7.60, or 0.4 percent, to $1,719.10 an ounce on the New York Mercantile Exchange.

Palladium futures for December delivery fell $3.25, or 0.5 percent, to $645.45 an ounce.

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net; Claudia Carpenter in London at ccarpenter2@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

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