--U.S. manufacturing index drop fuels hopes of Fed easing, boosting gold
--Comex December gold up 0.4% at $1,691.60 a troy ounce
--Possibility of euro-zone stimulus being announced by ECB Thursday bullish for gold
By Nicole Friedman
NEW YORK--Gold futures briefly ticked above $1,700 a troy ounce Tuesday--for the first time in nearly six months--after disappointing U.S. manufacturing data increased optimism that the Federal Reserve would take monetary-easing action at its Sept. 12-13 meeting.
However, the gold soon pared its gains. The most actively traded contract, for December delivery, was recently up $6.30, or 0.4%, at $1,691.60 per troy ounce on the Comex division of the New York Mercantile Exchange.
The Institute for Supply Management's manufacturing purchasing managers' index fell to 49.6 in August from 49.8 in July. A number below 50 indicates contraction, and the August reading was the lowest since July 2009. Economists surveyed by Dow Jones Newswires had expected the August PMI to come in at 49.9.
After the data was released at 10 a.m. EDT, gold prices climbed to $1,701.60, the highest intraday price since March 13.
Federal Reserve Chairman Ben Bernanke has said in recent weeks that he believes further easing actions could be effective if they are deemed necessary by the Fed's policy-making arm. Worse-than-expected economic data "strengthens the case" for the Fed to implement stimulus actions, said Edward Meir, analyst for INTL FC Stone.
Central-bank stimulus actions, which increase the amount of cash in the financial system, can boost precious metals as traders fearing inflation seek to store their wealth in hard assets.
Traders are also eyeing the European Central Bank meeting Thursday for news of potential stimulus measures to shore up euro-zone economies, which could be supportive for gold prices. ECB President Mario Draghi said Monday at a closed European Parliament hearing that the central bank is free to buy government bonds maturing in three years or less to add liquidity to the market and spur economic activity. However, no bond-buying program has been announced.
"We do expect the ECB action to be supportive of gold," said Standard Bank's Walter de Wet in a note.
Write to Nicole Friedman at nicole.friedman@dowjones.com
