Gold declines as investors await stimulus from policy makers

[SINGAPORE] Gold dropped as investors await potential stimulus measures from policy makers, while silver in China fell from its highest level in almost three years.

Bullion for immediate delivery lost as much as 0.4 per cent to US$1,337.54 an ounce and traded at US$1,339.25 by 12:03 pm in Singapore, according to Bloomberg generic pricing. Prices had added 0.7 per cent on Wednesday, snapping two days of declines. On the Shanghai Futures Exchange, silver futures dropped 0.7 per cent.

Gold has rallied 26 per cent this year as the fallout from the UK vote to leave the European Union and slowing global economic growth boost demand for haven assets.

Some risk appetite returned to equity markets this week amid speculation of further stimulus from governments and central banks.

Investors are awaiting details of Japanese Prime Minister Shinzo Abe's stimulus plans and expect more easing from the Bank of Japan. They're also looking at whether the Bank of England will cut interest rates later Thursday.

"Gold's consolidation earlier this week was not unexpected, especially in the face of a risk rally that is all about expected central-bank largesse, rather than improving fundamentals," Jordan Eliseo, Sydney-based chief economist at trader Australian Bullion Co, said by e-mail.

"With the BOE and the BOJ likely to implement further easing measures in due course, we expect gold to remain well bid."

The US economy shouldn't sustain much damage from the Brexit vote and may warrant as many as two interest-rate increases before the end of the year, Federal Reserve Bank of Philadelphia President Patrick Harker said Wednesday.

Still, the Fed's Beige Book, released Wednesday in Washington, showed that the world's largest economy expanded at a modest pace since mid- May, tempering any need to raise interest rates soon.

Traders are pricing in a 4 per cent probability of a rate increase at the Fed's next policy-setting panel meeting on July 26-27. Odds of a move in December are around 31 per cent. Higher rates damp the appeal of bullion which doesn't pay interest.

Holdings in gold-backed exchange-traded funds added 1.1 metric tons to 2,003.1 tons on Wednesday, data compiled by Bloomberg show.

In China, bullion of 99.99 per cent purity lost 0.3 per cent to 288.50 yuan a gram on the Shanghai Gold Exchange.

Silver for December delivery fell 0.7 per cent to 4,490 yuan a kilogram on the Shanghai Futures Exchange, from 4,523 yuan on Wednesday, the highest close since October 2013.

Spot silver lost 0.2 per cent, platinum dropped 0.4 per cent and palladium was up 0.2 per cent.

BLOOMBERG