Gold futures gained to $1,802.50 an ounce, silver futures gained 74.7 cents to $39.91 an ounce

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 its $1.65 trillion portfolio with longer-maturity debt in a bid to lower borrowing costs, according to economists.

“The Fed may announce some stimulus measures today,” 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.”

Gold futures for December delivery gained $23.60, or 1.3 percent, to $1,802.50 an ounce at 10:13 a.m. on the Comex in New York. The metal dropped 2 percent yesterday as the dollar jumped against a basket of major currencies

Before today, gold gained 25 percent this year, outperforming global equities and Treasuries. The metal reached a record $1,923.70 on Sept. 6.

“Continued concerns over euro-zone sovereign debt are likely to drive gold higher before policy makers are forced to take more effective action,” Bjarne Schieldrop, the Oslo-based chief commodity analyst at SEB AB, said in a report. “Under current circumstances, a long position in gold is highly recommended.”

Italy follows Spain, Ireland, Portugal, Cyprus and Greece as euro-region countries with 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 74.7 cents, or 1.9 percent, to $39.91 an ounce. The price dropped 4.1 percent yesterday. – Bloomberg

 

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