Gold Rises on Speculation Interest Rates to Fall; Silver Drops

By Pham-Duy Nguyen

Nov. 20 (Bloomberg) -- Gold climbed for a second straight day on speculation the Federal Reserve will lower interest rates to stimulate the U.S. economy, boosting the appeal of the precious metal as an alternative asset.

The yield on two-year Treasury notes dropped below 1 percent for the first time ever on bets the Fed will cut its benchmark rate next month. Gold reached a record $1,033.90 an ounce on March 17, after the Fed slashed rates 2.25 percentage points in four months.

``Interest rates are headed lower and that means less competition for gold,'' said Marty McNeill, a trader at R.F. Lafferty Inc. in New York. ``Gold is catching a flight-to- quality bid.''

Gold futures for December delivery rose $12.70, or 1.7 percent, to $748.70 an ounce on the Comex division of the New York Mercantile Exchange. The price has dropped 11 percent this year.

The Fed will lower its benchmark bank-lending rate 25 basis points to 0.75 percent, according to the median estimate of 68 economists surveyed by Bloomberg.

``With interest rates so low, that's triggering ownership of gold,'' said Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, New Jersey.

Other precious metals, which have wider industrial applications than gold, fell on concern that a global recession may damp demand for all commodities.

The International Monetary Fund projected that economies in the U.S., Japan and the euro zone will all shrink in 2009.

Industrial View

``Platinum, palladium and silver are now being counted as little more than expensive copper, expensive zinc, or expensive aluminum,'' said Dennis Gartman, an economist and editor of The Gartman Letter in Suffolk, Virginia. ``The `white-industrial' precious metals have followed the weakness of the base metals.''

Copper has fallen 48 percent this year.

Silver futures for December delivery fell 28.5 cents, or 3.1 percent, to $9.025 an ounce on Comex.

Platinum futures for January delivery dropped $33.60, or 4.1 percent, to $790.10 an ounce on Nymex. Palladium for December delivery fell $14.40, or 7.4 percent, to $179.45 an ounce.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.