The price of gold is at its highest level in nearly six months after a weak manufacturing report heightened expectations that the Fed will step in to help the economy.
Gold for December delivery rose $8.40 to finish Tuesday at $1,696 per ounce, the highest since mid-March.
A trade group of purchasing managers said factory production declined in August. The Institute of Supply Management said new orders and employment also fell. It was the latest indication that the manufacturing industry continues to struggle.
And the U.S. isn't alone. China, which is a huge importer of commodities, reported a decline in manufacturing in August. Manufacturing also is weak in Europe, which is struggling with a debt crisis that has sent several countries in the region into recession.
That's raising hope among traders that the Federal Reserve, the European Central Bank and China will take additional steps to improve economic growth. Gold would benefit because it often is used as a hedge against inflation.
Fed Chairman Ben Bernanke has said the Federal Reserve will do more to help the U.S. economy but has not provided specifics such as what type of help and when to expect it. The Fed meets Sept. 12-13.
Traders will be watching for news from the European Central Bank meeting on Thursday and for the U.S. nonfarm payroll figures, which are released Friday.