* Gold prices jump after Fed says to buy Treasuries
* Gold to benefit from money supply increase, low rates
* Platinum/gold ratio declines as yellow metal outperforms
* Coming up: U.S. federal budget due Wednesday
(Recasts, updates prices, adds FOMC reaction)
By Frank Tang
NEW YORK, Aug 10 (Reuters) - Gold prices turned higher on
Tuesday after the U.S. Federal Reserve said it would buy
longer-term government debt to boost a sputtering economic
recovery, increasing the metal's investment appeal.
Gold benefited from renewed economic uncertainty after the
Fed's decision to reinvest mortgage bond proceeds to keep
borrowing costs down, representing a significant policy shift
for the Fed that just a few months ago had been debating an
exit strategy from market stimulus.
A weakening dollar against the euro and the yen after the
Fed's policy statement also prompted gold buyers to step in, as
U.S. stocks cut losses after the Fed's announced measures
designed to boost sluggish economic growth. [] []
James Steel, chief commodity analyst at HSBC, said that
quantitative easing by the U.S. central bank and long-term
inflation concerns boosted gold prices.
"Quantitative easing keeps the yield curve steep, increases
money supply and keeps short-term interest rate low -- all of
those things are positive for gold prices," he said.
"A higher monetary supply always lead to worries about
inflation longer term, and it tends to be good for hard assets
like gold," Steel said.
Spot gold <XAU=> was at $1,205.60 an ounce at 2:48 p.m. EDT
(1848 GMT), against $1,200 late in New York on Monday.
U.S. gold futures for December delivery <GCZ0> were up
$5.10 at $1,207.70 an ounce, after settling at $1,198 prior to
the FOMC statement.
The Fed, which left benchmark overnight interest rates
steady in a zero to 0.25 percent range, also renewed its pledge
to keep them low for an extended period, as widely expected.
Speculation has emerged in recent days that the Fed may
take new measures to extend its quantitative easing program,
such as reinvesting funds to maintain its balance sheet.
[]
Any signs of further quantitative easing are likely to be
negative for the dollar, and positive for gold, analysts said.
In earlier trade, gold cut losses after government data
showed that U.S. business productivity fell for the first time
in 1-1/2 years in the second quarter and labor costs hardly
rose. []
A stronger dollar, however, kept gold prices lower prior to
the Fed's statement.
INDIAN BUYING
Gold's retreat from last week's three-week highs resulted
in a slight improvement in Asian physical demand.
Traders bought more metal in India, the world's largest
gold consumer, as prices eased below $1,200 an ounce.
[]
Physical gold demand tends to rise in August as jewelers
begin to stockpile inventory ahead of the start of India's
wedding season and the Hindu festival of Dhanteras,
traditionally major gold-buying events.
Among other precious metals, silver <XAG=> was at $18.34 an
ounce versus $18.29, platinum <XPT=> was at $1,536.50 an ounce
versus $1,540 and palladium <XPD=> was at $473.50 versus $475.
The platinum-gold ratio -- a measure of how many ounces of
gold are needed to buy an ounce of platinum -- eased to a 2-1/2
week low of 1.28, showing gold was becoming increasingly
expensive compared to platinum. (Graphic:
http://link.reuters.com/wek34n)
Prices at 2:51 p.m. EDT (1851 GMT)
LAST/ NET PCT YTD
CLOSE CHG CHG CHG
US gold <GCZ0> 1198.00 -4.60 -0.4% 9.3%
US silver <SIU0> 18.158 -0.084 0.0% 7.8%
US platinum <PLV0> 1537.00 -5.90 -0.4% 4.5%
US palladium <PAU0> 470.60 -9.05 -1.9% 15.1%
Gold <XAU=> 1204.55 4.55 0.4% 9.9%
Silver <XAG=> 18.35 0.05 0.3% 9.0%
Platinum <XPT=> 1537.00 -3.00 -0.2% 4.9%
Palladium <XPD=> 473.50 -1.50 -0.3% 16.8%
Gold Fix <XAUFIX=> 1192.50 -4.25 -0.4% 8.0%
Silver Fix <XAGFIX=> 18.09 -39.00 -2.1% 6.5%
Platinum Fix <XPTFIX=> 1539.00 3.00 0.2% 5.0%
Palladium Fix <XPDFIX=> 479.00 3.00 0.6% 19.2%
(Additional reporting/graphic by Jan Harvey and Amanda Cooper
in London; Editing by Lisa Shumaker)
