PRECIOUS-Gold rises after Moody's US credit warning hits dollar

* Gold extends gains after dollar falls on credit warning
* Heavy bets on US gold calls with higher strikes seen
* Sell-off possible on disappointment over Fed, stimulus
* Coming up: German constitutional court ruling at 0800 GMT
Wed

(Updates comment, market activity)
By Frank Tang and Amanda Cooper
NEW YORK/LONDON, Sept 11 (Reuters) - Gold rose toward a
six-month high o n T uesday as the dollar fell following a warning
by Moody's Investors Service on U.S. creditworthiness while gold
exchange-traded products were in demand by investors.
The metal received a boost after credit rating agency
Moody's said the United States may lose its "triple-A" debt
rating if next year's budget negotiations do not produce
policies that decrease debt.
Gold investor sentiment was already bullish after last
week's disappointing U.S. payrolls data raised hopes that the
Federal Reserve could unveil new stimulus as early as Thursday
at its policy meeting.
"Every piece of bad news seems to be good for gold, only
because it translates into something that the Fed has to do to
get this economy off the ground," said Anthony Neglia, president
of Tower Trading and a COMEX gold options floor trader.
Heavy positioning in COMEX December calls at strike prices
above $1,800 an ounce suggests that many investors believe gold
could rise further by the end of the year, Neglia said.
Spot gold was up 0.4 percent at $1,731.66 an ounce by
2:55 a.m. EDT (1855 GMT). The price has risen 2.5 percent so far
in September to hover near its highest in six months.
U.S. gold futures for December delivery settled up
$3.10 at $1,734.90 an ounce, with trading volume currently at
about 40 percent below its 250-day average, preliminary Reuters
data showed.
Silver rose 0.3 percent to $33.39 an ounce.
Gold also benefits from rising expectations that a German
court will back the euro zone bailout fund, even though it also
means that any hitch could unleash sharp moves in stocks, bonds
and the euro, traders said.
U.S. gold futures open interest, which measures the total
number of long and short outstanding contracts, is at a
six-month high.
"Rising open interest means lots of funds are back in the
market with nervous positions that could result in heavy selling
if the market is disappointed by events this week," said George
Gero, vice president of RBC Capital Markets.

INVESTMENT BUYING STRONG
Holdings of bullion in exchange-traded products (ETPs),
often used as a gauge of investor appetite for gold, rose by
91,932 ounces on the day to a record 72.49 million ounces,
following broad-based inflows into most major ETPs.

UBS strategist Edel Tully said in a note that strong buying
in gold ETPs has helped offset worries that investors might take
profit following a sharp increase in bullish bets in U.S. gold
futures by hedge funds and money managers.
Among platinum group metals, platinum climbed 0.6
percent to $1,597.90 an ounce, while palladium was up 0.5
percent at $666.22 an ounce.
2:55 PM EDT LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL
US Gold DEC 1734.90 3.10 0.2 1728.00 1740.50 97,099
US Silver SEP 33.509 -0.065 -0.2 33.420 33.765 69
US Plat OCT 1607.00 3.20 0.2 1588.80 1612.50 5,685
US Pall SEP 674.40 2.15 0.3 668.80 675.30 26

Gold 1731.66 6.87 0.4 1726.33 1737.80
Silver 33.390 0.090 0.3 33.360 33.810
Platinum 1597.90 8.90 0.6 1591.00 1607.99
Palladium 666.22 3.32 0.5 669.52 676.00

TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG
US Gold 104,586 135,072 182,221 19.45 0.04
US Silver 35,577 52,994 53,246 31.87 1.34
US Platinum 6,163 16,098 9,269 20.93 0.13
US Palladium 2,961 7,627 4,653

(Editing by Marguerita Choy and Alden Bentley)