Gold struggles as equities recover after China rate cut

[MANILA] Gold slipped on Wednesday as equities bounced back after China eased monetary policy further to support a faltering economy and stock markets that had fueled this week's global rout.

Bullion erased early gains to extend Tuesday's 1.2-per cent drop that came after a recovery in global stocks following China's move to cut interest rates and bank reserve requirements.

Asian stocks shook off early weakness to race higher on Wednesday, led by battered Chinese shares even as worries lingered on whether China's actions would be enough to stabilise its cooling economy or halt a collapse in its stock markets.

That could put the focus back on a potential US interest rate increase this year, dampening gold's appeal. "If the confidence (in equities) does hold up, the next question is whether the market is looking at a September or a December rate hike," said Barnabas Gan, analyst at OCBC Bank in Singapore. "The key factor that underpins the bearish view for gold is very much the Fed rate hike expectation and that possibility is not off the table." Spot gold was down 0.4 per cent at US$1,135.26 an ounce by 0609 GMT, on track for a third day of losses. The metal's 1.2-per cent fall on Tuesday was its steepest since July 20.

US gold for December delivery dropped 0.3 per cent to US$1,135.30 an ounce.

US consumer confidence hit a seven-month high in August and new single-family home sales rebounded in July, suggesting underlying strength in the economy that could still allow the Federal Reserve to hike rates this year.

OCBC's Gan said gold, which touched a near seven-week high of US$1,168.40 last week, could only rally towards US$1,200 "if there is confirmation that a US rate hike will not happen this year".

China's turbulent stock markets turned sharply higher at midday on Wednesday, following Tuesday's strong dose of central bank stimulus, though confidence in Beijing's ability to jolt the economy out of its slowdown remained fragile. "Drip-feed of stimulus might not be sufficient to arrest aggressive bears, or significantly lift the economy in a demand-constrained world," Mizuho Bank said in a note on China's policy action.

Palladium climbed 1.7 per cent to US$545.22 an ounce after tumbling more than 6 per cent overnight, its steepest fall since April 2013. The metal, mainly used in emissions control systems for cars, trucks and other vehicles, hit a five-year trough of US$528.50 on Tuesday and has lost around 9 per cent so far this week.

Platinum rose 0.7 per cent to US$982 an ounce and silver dipped 0.7 per cent to US$14.59.

REUTERS