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Gold Jumps Most in Four Weeks on Dollar Slump, Stimulus

Oct. 17 (Bloomberg) -- Gold futures jumped the most in four weeks as the dollar slumped and speculation mounted that the Federal Reserve will hold off on scaling back monetary stimulus, boosting demand for the metal as an alternative investment.

The greenback fell the most in a month against a basket of 10 major currencies on speculation that disruptions from the U.S. debt-ceiling debate and a 16-day government shutdown will spur the Fed to maintain debt purchases. In China, which has the largest foreign holdings of Treasuries, one of the Asian nation’s biggest credit-rating companies cut its grade on the U.S. to A- from A.

“The drag put on the economy because of the shutdown will force the Fed to continue with the stimulus measures,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “The dollar’s weakness is helping gold.”

Gold futures for December delivery rose 3.2 percent to settle at $1,323 an ounce at 1:41 p.m. on the Comex in New York, the biggest gain for a most-active contract since Sept. 19. Trading was 31 percent above average for the past 100 days for this time, data compiled by Bloomberg showed.

Congress voted yesterday to raise the debt limit. The partial government shutdown that began Oct. 1 took $24 billion out of the economy, Standard & Poor’s said yesterday.

This year, gold has dropped 21 percent, heading for the first annual drop since 2000. Some investors lost faith in the metal as a store of value after U.S. equities rallied to a record and inflation remained muted.

Silver futures for December delivery advanced 2.7 percent to $21.947 an ounce.

On the New York Mercantile Exchange, platinum futures for January delivery increased 2.6 percent to $1,434.90 an ounce. Palladium futures for December delivery climbed 3.4 percent to $737.80 an ounce. The gains were the most since Sept. 19.

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net; Nicholas Larkin in London at nlarkin1@bloomberg.net

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

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