Gold declines as investors await stimulus from policy makers

[SINGAPORE] Gold dropped as equities rallied ahead of 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 0.8 per cent to US$1,331.52 an ounce and traded at US$1,333.04 by 3.37pm in Singapore, according to Bloomberg generic pricing. The metal had added 0.7 per cent on Wednesday, snapping two days of declines. On the Shanghai Futures Exchange, silver futures dropped 0.8 per cent.

Gold has risen 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, 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."

BEIGE BOOK

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 on Wednesday. Still, the Fed's Beige Book, released on Wednesday in Washington, showed that the world's largest economy expanded at a modest pace since mid- May, tempering any need to raise 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 31 per cent. Higher rates damp the appeal of bullion which doesn't pay interest.

BLOOMBERG