Gold hit a near-two-week high in early trading on Friday after China eased monetary policy and on the release of pent-up demand in India.
Spot gold hit an intraday high of $1,223.40 during Asian trading, its highest since February 17, but it has since retreated to $1,214.90/1,215.80 per ounce, up $2.50.
Gold’s credentials as a safe haven improved after the People’s Bank of China cut both the one-year deposit rate and the one-year lending rate by 25 basis points to 2.5 percent and 5.35 percent respectively.
This marks the second easing in PBoC policy in two months following a cut in the required reserve ratio.
This comes ahead of the National People’s Congress, scheduled for Thursday, where a reduction in the national GDP growth target to around seven percent from 7.5 percent is widely anticipated.
“The Chinese central bank is the next central bank to take a step which serves implicitly to weaken its own currency. This signals the next round of the devaluation race between currencies. Further central banks are likely to follow suit, meaning that gold should remain in demand as an alternative currency,” Commerzbank said in a note.
Meanwhile, in data overnight, the HSBC China final manufacturing PMI at 50.7 was up from January’s 49.7 and was the first improvement since October.
Over the weekend, the Indian government disappointed market observers who had expected a cut in gold import duties in its annual budget. The finance ministry opted instead for further measures to monetise the metal through the introduction of a gold-centric bond and overhaul its gold deposit scheme
The bonds will carry a fixed interest rate and will be redeemable in cash pegged to the face value of gold at the time of maturity. As well as giving investors long exposure to gold, they will also earn a fixed interest rate – gold typically has no direct yield.
Many importers had been holding back on bringing metal into the country in anticipation of the cut so pent-up demand is expected to support gold prices in the near term.
“Theoretically this should be bearish and in the long run it might be, but importers had been waiting to stock up, hoping that the budget would cut the duty,” Marex Spectron’s David Govett said in a note.
“So now, regardless of the fact there has been no cut, they need the gold for the immediate future and especially for Akshaya Tritiya, considered by India’s more than 900 million Hindus as an auspicious day to buy precious metals, which falls on April 21 this year,” he added.
In other data today, the final eurozone manufacturing PMI at 51.0 was largely in line with expectations but the core CPI estimate at -0.3 percent was better than the forecast -0.5 percent. The core figure, which strips out the volatile elements such as energy, came in at 0.6 percent, while the unemployment rate improved to 11.2 percent.
The euro has made modest gains against the dollar at 1.1213, having earlier been as low as 1.1159.
The Italian monthly unemployment rate at 12.6 percent outperformed although the quarterly number at 13 percent disappointed.
The US will release its core PCE price index, personal spending, its final manufacturing PMI, the ISM manufacturing PMI, construction spending and personal spending figures later
In the PGMs, platinum was up $1 at $1,182/1,187 per ounce, palladium was $2 higher at $813/819 and silver gained six cents to $16.61/16.66.
(Additional reporting by Kathleen Retourne and Lynette Tan, editing by Mark Shaw)
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