The gold price made gains on Wednesday morning after the Chinese central bank cut its reserve ratio by 0.5 percentage points to 19.5 percent.
Spot gold hit a session high of $1,271.70, having earlier been consolidating, and was last at $1,270.00/1,270.80 per ounce, still up $9.10. Silver followed to $17.42/17.47, up 19 cents.
China’s rate cut will act as an immediate release of liquidity for domestic banks, which comparably have large reserve capital requirements, to decrease the likelihood of debt blow-ups.
Central banks across the world are increasingly loosening monetary policy to fight slowing growth and a lack of inflation. The PBOC is the 16th central bank to act in the face of deflationary pressures so far this year
“Gold’s rally this year has been partly on the idea that central bankers are losing control in their fight against slowing growth and deflation, gold benefits as a safe-haven from that,” a trader said. “So this, if only at the margins, plays into that.”
The metal has initially been under pressure following yesterday’s one-percent drop – investor concerns over Greece’s bailout programme eased after new finance minister Yanis Varoufakis proposed that the country swap its outstanding government debt with international creditors for growth-linked or perpetual bonds.
Varoufakis will meet ECB president Mario Draghi today to persuade him that reducing the terms of Greece’s repayments is in the best interests of all parties, while also calling for the end of the Troika.
Traders will watch the results of the meeting and others this week with other European finance ministers for clues on the medium-term outlook for the eurozone.
Meanwhile, data from the bloc was mostly positive. The Spanish and Italian services PMIs at 51.2 and 52.7 respectively beat expectations. The EU final services PMI was positive at 57.2, as were retail sales at 0.3 percent.
Today’s economic agenda includes services PMI data from the US, the ADP non-farm employment change and crude oil inventories.
The week’s data-flow will culminate in Friday’s non-farm payrolls report for January – expected to illuminate the probable timetable for rate increases.
Platinum and palladium defied the downward movement in gold price on Tuesday and are up again this morning after solid January car sales out of the US.
Platinum was $11 higher at $1,236/1,246 per ounce while palladium was up $9 at $790/796.
(Editing by Mark Shaw)
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