Gold price slips 0.7 pct, shrugs off further weakness in equities

Otmane El Rhazi from The Bullion Desk.

Gold edged lower on Wednesday morning, failing to benefit from its safe-haven qualities despite Chinese and European stock markets falling again today.

The spot gold price was last at $1,135/1,135.20 per ounce, down $8.40 or more than 0.7 percent on Tuesday’s close. Trade has ranged from $1,133.50 to $1,146.70 so far. Silver was little changed at $14.53/14.59.

“It is common for gold to find a knee-jerk bid in periods of fear – but then it is also common that this bid does not hold too long as it remains a risk trade like all else,” Triland said in a note.

European stocks fell this morning after China’s latest efforts to prop up the economy failed to stabilise the country’s stock markets – the Shanghai composite index closed 1.3 percent down, its lowest since December, after a volatile trading session.

Yesterday the People’s Bank of China cut its benchmark lending rate by 25 basis points to 4.6 percent – the fifth reduction since November – with effect from Wednesday. As well, it lowered the one-year deposit rate by 25 basis points to 1.75 percent.

“Clearly, the authorities are quite worried about the state of affairs and are resorting to traditional easing measures to prop up local markets, especially after their more unorthodox and heavy-handed measures did not do the trick,” INTL FCStone analyst Edward Meir said.

The People’s Bank of China (PBoC) will inject $21.80 billion through a short-term liquidity adjustment to steady flagging financial markets, according to reports. The volume of money flowing out of the country over the past few days has raised worries that Chinese lenders might run short of cash.

In today’s data, Japan’s Services PPI was firmer at 0.6 percent. Later investors will watch US data that includes durable goods and crude oil inventories. As well, FOMC member William Dudley is speaking today.

In currencies, the dollar continues to rebound – the dollar index was last at 94.31 after a low on Monday of 92.56.

Gold had rallied to $1,171 earlier this week in a flight to safety and on short-covering, which could yet provide further upward impetus, FastMarkets head of research William Adams said.

“Gold rallied on safe-haven buying – if the tide has turned in other markets, gold is likely to pull back to consolidate. With emerging market currencies still weak and in fear of further devaluation, interest in gold may not fade too much. The more industrial precious metals are also likely to benefit should markets become less fearful,” he added.

Platinum at $981/986 per ounce was up $4 while palladium edged $1 lower to $535/540, not far from its 2010 low hit in the previous session.

(Editing by Mark Shaw)

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