Gold rises to one-week high on stimulus speculation

May 18 (Bloomberg) -- Gold rose to a one-week high on renewed speculation that the Federal Reserve will announce additional stimulus to boost the U.S. economy, increasing demand for the precious metal as an inflation hedge.

Bullion jumped 2.5 percent yesterday, the most since October, after a report showed manufacturing in the Philadelphia region unexpectedly shrank in May, the first contraction in eight months. Before yesterday, gold was in a bear market, erasing this year’s gain, as Europe’s widening debt crisis sent investors to the safety of the dollar. The Fed has held U.S. borrowing costs at a record low since 2008 and bought $2.3 trillion in housing and government debt to spur growth during two rounds of so-called quantitative easing.

“Expectations of some form of easing have perked up the market,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview.

Gold futures for June delivery gained 1.1 percent to $1,592.30 an ounce at 10:22 a.m. on the Comex in New York, after reaching $1,595.50, the highest since May 10. The price is up 0.5 percent since May 11, heading for the first weekly gain this month. The metal, down 17 percent since reaching a record $1,923.70 on Sept. 6, is up 1.7 percent for the year, heading for a 12th straight annual gain.

Chairman Ben S. Bernanke on April 25 said he was prepared to take further action to aid the economy if necessary.

Moody’s Investors Service lowered the credit ratings of 16 Spanish banks yesterday, and Fitch Ratings cut Greece’s credit rating on concern that the country may not be able to sustain euro membership.

“To see a return of gold reacting positively to macro stresses is indeed refreshing, but it is still far too early to make any firm conclusions from here that gold has indeed turned the corner,” Edel Tully, an analyst at UBS AG in London, wrote in a report today. “Follow-through buying will have to kick in to encourage investors to jump in.”

Silver futures for July delivery rose 2.2 percent to $28.63 an ounce on the Comex.

Bloomberg News

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