Gold futures rebound from six-week low amid China stimulus bets

[NEW YORK] Gold futures recovered from a six-week low amid speculation that weaker economic growth will prompt officials to add to stimulus in China, which rivals India as the world's top bullion buyer.

China's central bank has already loosened monetary policy, and the manufacturing gauge published Monday that signaled contraction for April fuelled anticipation that more measures will come. Revived growth prospects can help buoy physical demand for precious metals, according to Bart Melek, the head of commodity strategy at TD Securities.

Futures are rebounding after three weeks of declines. The Federal Reserve has dampened speculation that it will delay boosting interest rates. Traders are awaiting the April US payrolls report on Friday for more signals on the timing of increases for borrowing costs. Higher rates drive investors to favour assets that pay interest, such as bonds, curbing gold's appeal as a store of value, since it generally offers returns only through price gains.

"Expectations of Chinese stimulus are helping the market," Toronto-based Melek said in a telephone interview. "The next few days will be all about the US data and the big employment number."

On the Comex in New York, gold futures for June delivery rose 1 per cent to settle at US$1,186.80 an ounce at 1:47 pm. On May 1, the price touched US$1,168.40, the lowest for a most-active contract since March 20.

Employers in the US added 225,000 workers last month, up from 126,000 in March, according to the median estimate in a Bloomberg survey of economists before the Labor Department report on May 8. The unemployment rate may decline to 5.4 per cent from 5.5 per cent.

"Payrolls is the thing that people are lining up for," Wayne Gordon, an analyst at UBS Group in Singapore, said by telephone. "If this number is under 200,000, gold will be at US$1,250. If the number is above 225,000, the consensus estimate, gold will be at US$1,150." Two Fed officials - Cleveland President Loretta Mester and San Francisco President John Williams - said last week the central bank is ready to raise interest rates at any meeting as the US economy picks up after a harsh winter. Williams, who votes on policy this year, said he would be scrutinizing employment reports for April and May, as well as data revisions for earlier months in the year.

Silver futures for July delivery jumped 1.9 per cent to US$16.441 an ounce on the Comex, the biggest gain in a week.

Platinum futures for July delivery advanced 1.9 per cent to US$1,150.90 an ounce on the New York Mercantile Exchange. Palladium futures for June delivery rose 1.2 per cent to US$782.65 an ounce.

BLOOMBERG